tag:blogger.com,1999:blog-367220432013-05-24T07:39:52.693-04:00A Disciplined Approach to InvestingDavid Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.comBlogger1383125http://creativecommons.org/images/public/somerights20.gifblogspot/KfQphttp://feedburner.google.comtag:blogger.com,1999:blog-36722043.post-83197145422439251642013-05-23T11:44:00.001-04:002013-05-24T07:39:52.712-04:00<div style="text-align: justify;">Today's release of <a href="http://www.aaii.com/SentimentSurvey" target="_blank">AAII's Investor Sentiment Survey</a> saw bullish investor sentiment increase 10.5 percentage points to 49.0%. This reading is right at the average plus one standard deviation level. The bull/bear spread widen to +27.4%. The weekly reading can be volatile so looking at the 8-week moving average smooths some of this volatility. This week's 8-week average is reported at 33.7%, up from 32.3% last week.</div><br /><center><table style="width: auto;"><tbody><tr><td><a href="https://picasaweb.google.com/lh/photo/7xnnqwvsDFs0sAVQ9fXEhefYVkiwW7Qp_c9ujmbNUkg?feat=embedwebsite"><img height="373" src="https://lh3.googleusercontent.com/-eXXxnV5RMEw/UZ4xcNlI9hI/AAAAAAAAIEQ/CPe9xQtjdw0/s800/sentiment%25205%252023%25202013.PNG" width="588" /></a></td></tr><tr><td style="font-family: arial,sans-serif; font-size: 11px; text-align: right;">From <a href="https://picasaweb.google.com/116374550084895587184/TheBlogOfHORANCapitalAdvisors02?authuser=0&amp;feat=embedwebsite">The Blog of HORAN Capital Advisors</a></td></tr></tbody></table></center><br /><div class="feedflare"> <a href="http://feeds.feedburner.com/~ff/blogspot/KfQp?a=LTe__Ooryp0:HYmEprXjWeo:yIl2AUoC8zA"><img src="http://feeds.feedburner.com/~ff/blogspot/KfQp?d=yIl2AUoC8zA" border="0"></img></a> </div><img src="http://feeds.feedburner.com/~r/blogspot/KfQp/~4/LTe__Ooryp0" height="1" width="1"/>David Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.com0http://disciplinedinvesting.blogspot.com/2013/05/individual-investor-sentiment-spikes.htmltag:blogger.com,1999:blog-36722043.post-10229451026829930032013-05-19T14:51:00.000-04:002013-05-19T14:51:03.263-04:00<div style="text-align: justify;">In the final second of trading on Friday, Anadarko Petroleum Corp. (<a href="http://www.marketwatch.com/investing/stock/apc" target="_blank">APC</a>) goes from a $90 stock and trades down to $.01, that is a penny a share before closing at $90.03. I am sure some buyers (computers) thought they were fortunate to pick up APC at one penny. On the contrary, the <a href="http://blogs.marketwatch.com/energy-ticker/2013/05/17/nyse-cancels-rogue-anadarko-trades/" target="_blank">NYSE canceled trades</a> executed below $87.56 per share.</div><br /><center><table style="width: auto;"><tbody><tr><td><a href="https://picasaweb.google.com/lh/photo/eFeX1iYnwHo9cMWtP67EN-fYVkiwW7Qp_c9ujmbNUkg?feat=embedwebsite"><img height="267" src="https://lh4.googleusercontent.com/-i8Ls9bBRT8A/UZkaeg3QqfI/AAAAAAAAIDM/yP9Y9bACLbA/s800/APC%2520Chart.PNG" width="560" /></a></td></tr><tr><td style="font-family: arial,sans-serif; font-size: 11px; text-align: right;">From <a href="https://picasaweb.google.com/116374550084895587184/TheBlogOfHORANCapitalAdvisors02?authuser=0&amp;feat=embedwebsite">The Blog of HORAN Capital Advisors</a></td></tr></tbody></table></center><br /><center><table style="width: auto;"><tbody><tr><td><a href="https://picasaweb.google.com/lh/photo/Y1bqv8jphvjID9bryvUz3OfYVkiwW7Qp_c9ujmbNUkg?feat=embedwebsite"><img height="492" src="https://lh6.googleusercontent.com/-LUW6EoCdDqI/UZkahK74nJI/AAAAAAAAIDU/tcri_N7UIJk/s800/APC%2520Trades%25205%252017%25202013.PNG" width="480" /></a></td></tr><tr><td style="font-family: arial,sans-serif; font-size: 11px; text-align: right;">From <a href="https://picasaweb.google.com/116374550084895587184/TheBlogOfHORANCapitalAdvisors02?authuser=0&amp;feat=embedwebsite">The Blog of HORAN Capital Advisors</a></td></tr></tbody></table></center><br /><div style="text-align: justify;">This type of trading activity certainly weighs on investor confidence in the markets and is an issue that most certainly needs to be addressed.</div><div class="feedflare"> <a href="http://feeds.feedburner.com/~ff/blogspot/KfQp?a=4iKXtxpzFKQ:FcW_LPAFG-4:yIl2AUoC8zA"><img src="http://feeds.feedburner.com/~ff/blogspot/KfQp?d=yIl2AUoC8zA" border="0"></img></a> </div><img src="http://feeds.feedburner.com/~r/blogspot/KfQp/~4/4iKXtxpzFKQ" height="1" width="1"/>David Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.com0http://disciplinedinvesting.blogspot.com/2013/05/anadarko-petroleum-trades-as-low-as-one.htmltag:blogger.com,1999:blog-36722043.post-60489855285773871262013-05-19T11:20:00.001-04:002013-05-19T11:20:23.764-04:00<div style="text-align: justify;">As the market continues to seemingly move higher every day, investor complacency appears to be on the rise. The recent CBOE equity put/call ratio is at a low level of .50. Like other sentiment indicators, this measure tends to be more accurate at extremes. On April 20th we wrote about the <a href="http://disciplinedinvesting.blogspot.com/2013/04/equity-putcall-ratio-at-level-last-seen.html" target="_blank">elevated put/call ratio</a> and wondered if the market was excessively bearish. Since the time of that post, the market has advanced over 7%.</div><br /><center><table style="width: auto;"><tbody><tr><td><a href="https://picasaweb.google.com/lh/photo/VWFUAmrxZuSw_XPBbjTD6-fYVkiwW7Qp_c9ujmbNUkg?feat=embedwebsite"><img height="389" src="https://lh6.googleusercontent.com/-INmLSvg35LY/UZjTWwym3WI/AAAAAAAAICM/vjSwHjitv_k/s800/put%2520call%25205%252020%25202013.PNG" width="524" /></a></td></tr><tr><td style="font-family: arial,sans-serif; font-size: 11px; text-align: right;">From <a href="https://picasaweb.google.com/116374550084895587184/TheBlogOfHORANCapitalAdvisors02?authuser=0&amp;feat=embedwebsite">The Blog of HORAN Capital Advisors</a></td></tr></tbody></table></center><br /><div style="text-align: justify;">Additionally, fixed income assets as a percentage of all mutual fund assets recently began to decline. Are investors now warming up to equities in spite of the strong advance that has occurred year to date? On the other hand, given the low level of interest rates, bond investors are having a difficult time finding fixed income assets that provide adequate yield without taking on maturity and/or credit risk. Income yielding stocks seem to be the bond investors new bond substitute.</div><br /><center><table style="width: auto;"><tbody><tr><td><a href="https://picasaweb.google.com/lh/photo/jk3OcNrk270wQh-eoHJIkOfYVkiwW7Qp_c9ujmbNUkg?feat=embedwebsite"><img height="402" src="https://lh3.googleusercontent.com/-qMF7fb8F1yw/UZjTaUr1xOI/AAAAAAAAICU/YriuyKTQrck/s800/fix%2520vss%2520all%2520funds%25205%25202013.PNG" width="528" /></a></td></tr><tr><td style="font-family: arial,sans-serif; font-size: 11px; text-align: right;">From <a href="https://picasaweb.google.com/116374550084895587184/TheBlogOfHORANCapitalAdvisors02?authuser=0&amp;feat=embedwebsite">The Blog of HORAN Capital Advisors</a></td></tr></tbody></table></center><div style="text-align: justify;"><br /></div><div style="text-align: justify;">Recent economic news has not been great or not as bad as economist had expected. The Empire State Manufacturing Index was below expectations, housing starts lower than expectations and industrial production lower than expectations. The employment numbers showed an improvement last week; however, it is difficult to gauge whether it is because people continue to drop out of the work force (declining participation rate) and other non favorable factors.</div><div style="text-align: justify;"><br /></div><div style="text-align: justify;">This is certainly a difficult point in the market cycle for investors to navigate. One thing the market does like to do is one, prove the consensus wrong and two, climb the proverbial "wall of worry."</div><div class="feedflare"> <a href="http://feeds.feedburner.com/~ff/blogspot/KfQp?a=fXjRn4Nr4hE:JBA7HlLftBA:yIl2AUoC8zA"><img src="http://feeds.feedburner.com/~ff/blogspot/KfQp?d=yIl2AUoC8zA" border="0"></img></a> </div><img src="http://feeds.feedburner.com/~r/blogspot/KfQp/~4/fXjRn4Nr4hE" height="1" width="1"/>David Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.com0http://disciplinedinvesting.blogspot.com/2013/05/complacency-setting-in-and-fund-flows.htmltag:blogger.com,1999:blog-36722043.post-79874941041137662252013-05-15T22:11:00.004-04:002013-05-15T22:11:53.522-04:00<div style="text-align: justify;">Morningstar recently reported the number of bond funds buying or holding stocks is at the highest level in 18 years. The below chart from <a href="http://www.schwab.com/public/schwab/resource_center/expert_insight/todays_market/sonders/everybody_wants_some.html" target="_blank">Charles Schwab details data</a> over the last ten years. Schwab/Morningstar note the percentage of bond funds holding equities has remained stable over this time period though. Nonetheless, more bond funds are buying equities in an effort to find higher yielding securities than currently available from bonds.</div><br /><center><table style="width: auto;"><tbody><tr><td><a href="https://picasaweb.google.com/lh/photo/_skFQQWERaCmLjywNh22_efYVkiwW7Qp_c9ujmbNUkg?feat=embedwebsite"><img height="365" src="https://lh3.googleusercontent.com/-mbmQz3bO298/UZQ94J0Gd3I/AAAAAAAAIB0/b-x8MtnCJu0/s800/bond%2520funds%2520buy%2520stks%25205%25202013.PNG" width="566" /></a></td></tr><tr><td style="font-family: arial,sans-serif; font-size: 11px; text-align: right;">From <a href="https://picasaweb.google.com/116374550084895587184/TheBlogOfHORANCapitalAdvisors02?authuser=0&amp;feat=embedwebsite">The Blog of HORAN Capital Advisors</a></td></tr></tbody></table></center><div style="text-align: center;"><i>Source: <a href="http://www.schwab.com/public/schwab/resource_center/expert_insight/todays_market/sonders/everybody_wants_some.html" target="_blank">Charles Schwab</a></i></div><br /><div style="text-align: justify;">In addition to bond funds jumping into dividend yielding stocks, Schwab reported the following from a survey of the central banks around the globe:</div><div style="text-align: justify;"><blockquote class="tr_bq">"Last month, Central Bank Publications and Royal Bank of Scotland Group Plc conducted a survey of 60 central bankers. Nearly 25% of respondents said they own stock shares or plan to buy them. The Bank of Japan, featured heavily in the news recently and holder of the world's second-largest level of reserves, said it will more than double investments in stock exchange-traded funds by 2014. The Bank of Israel bought stocks for the first time last year, and the Swiss National Bank and Czech National Bank have upped their holdings to at least 10% of reserves.<br /><br />Of the 60 banks surveyed, 14 said they'd already invested in stocks or would do so within five years. In fact, this is the first time ever the question about stocks has been in this annual survey.<br /><br />Behind the heightened interest in stocks are growing central-bank reserves requiring increased diversification. In US dollar terms, the four largest central banks have expanded their balance sheets to more than $13 trillion, compared to only $3 trillion 10 years ago. Most central banks have had heavy and consistent reliance on fixed-income securities, but with yields low (and falling) in many countries, keeping all reserves in fixed income risks a declining value of reserves.<br /><br />However, 70% of the central banks in the survey (including the US Federal Reserve) indicated that stocks remain "beyond the pale." A few central banks, including the Fed and the Bank of England, have no mandate to purchase stocks directly.<br /><br />Jim O'Neill, chairman of Goldman Sachs Asset Management, weighed in: 'I don't think people should worry about (central banks owning stocks). Frankly, it makes a huge amount of sense in a world of floating exchange rates and such incredible opportunity, why should central banks keep so much money in very short-term, liquid things when they're not going to ever need it?'"</blockquote></div><br /><div class="feedflare"> <a href="http://feeds.feedburner.com/~ff/blogspot/KfQp?a=ynWYod7B1Gs:HNg_jX4OLI4:yIl2AUoC8zA"><img src="http://feeds.feedburner.com/~ff/blogspot/KfQp?d=yIl2AUoC8zA" border="0"></img></a> </div><img src="http://feeds.feedburner.com/~r/blogspot/KfQp/~4/ynWYod7B1Gs" height="1" width="1"/>David Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.com0http://disciplinedinvesting.blogspot.com/2013/05/bond-funds-and-central-banks-are-buying.htmltag:blogger.com,1999:blog-36722043.post-39019365806947989602013-05-12T14:35:00.000-04:002013-05-12T14:35:17.643-04:00<div style="text-align: justify;">Not much seems able to restrain the strength of the bull market in U.S. equities. On a year to date basis the <a href="http://www.standardandpoors.com/indices/sp-500/en/us/?indexId=spusa-500-usduf--p-us-l--" target="_blank">S&amp;P 500 Index is up 15.43%</a>. The advance has finally drawn investors into equity mutual funds as reflected in positive equity mutual fund flows the first three months of the year.</div><br /><center><table style="width: auto;"><tbody><tr><td><a href="https://picasaweb.google.com/lh/photo/7FQk9Sp_wxuRX1rmykTgFefYVkiwW7Qp_c9ujmbNUkg?feat=embedwebsite"><img height="395" src="https://lh5.googleusercontent.com/-6Jp29nbjSq4/UY_SlzxSmPI/AAAAAAAAIBM/K3WJZSCVhFs/s800/fund%2520flows%2520and%2520SP%25205%25202013.PNG" width="500" /></a></td></tr><tr><td style="font-family: arial,sans-serif; font-size: 11px; text-align: right;">From <a href="https://picasaweb.google.com/116374550084895587184/TheBlogOfHORANCapitalAdvisors02?authuser=0&amp;feat=embedwebsite">The Blog of HORAN Capital Advisors</a></td></tr></tbody></table></center><br /><div style="text-align: justify;">The positive market results continue to keep the S&amp;P 500 Index in a positive uptrend channel that began in the middle of November of last year. Aside from the fact company fundamentals and valuations look reasonable, at least not overvalued, higher equity prices could continue to unfold. However, we have noted in several recent posts the rotation that has occurred of late out of the more defensive sectors into the more cyclical ones.</div><br /><center><table style="width: auto;"><tbody><tr><td><a href="https://picasaweb.google.com/lh/photo/uWeJIe9OAJihwsB-w_-3a-fYVkiwW7Qp_c9ujmbNUkg?feat=embedwebsite"><img height="380" src="https://lh3.googleusercontent.com/-fAmUpliQipk/UY_Sgz9IaWI/AAAAAAAAIA0/4y3o-F1dP6k/s800/sp%25205%252010%25202013.PNG" width="613" /></a></td></tr><tr><td style="font-family: arial,sans-serif; font-size: 11px; text-align: right;">From <a href="https://picasaweb.google.com/116374550084895587184/TheBlogOfHORANCapitalAdvisors02?authuser=0&amp;feat=embedwebsite">The Blog of HORAN Capital Advisors</a></td></tr></tbody></table></center><br /><div style="text-align: justify;">Because of the significant amount of artificial stimulus being pumped into the global economy by most central banks around the world, we believe investors need to have a heightened focus on the underlying technical aspects of the market in order to gain insight into potential market turning points. No one technical indicator is the panacea that will predict the market's future direction. One indicator useful to evaluate for the market and/or individual stocks is the <a href="http://stockcharts.com/school/doku.php?id=chart_school:technical_indicators:money_flow_index_mfi" target="_blank">Money Flow Index (MFI)</a>. This index is a variation of the Relative Strength Index (RSI). The <a href="http://stockcharts.com/">StockCharts.com</a> website provides the following definition of MFI:</div><div style="text-align: justify;"><blockquote class="tr_bq">"The Money Flow Index (MFI) is an oscillator that uses both price and volume to measure buying and selling pressure. Created by Gene Quong and Avrum Soudack, MFI is also known as volume-weighted RSI. MFI starts with the typical price for each period. Money flow is positive when the typical price rises (buying pressure) and negative when the typical price declines (selling pressure). A ratio of positive and negative money flow is then plugged into an RSI formula to create an oscillator that moves between zero and one hundred. As a momentum oscillator tied to volume, the Money Flow Index (MFI) is best suited to identify reversals and price extremes with a variety of signals."<br /><br />"The Money Flow Index is a rather unique indicator that combines momentum and volume with an RSI formula. RSI momentum generally favors the bulls when the indicator is above 50 and the bears when below 50. Even though MFI is considered a volume-weighted RSI, using the centerline to determine a bullish or bearish bias does not work as well. <i>Instead, MFI is better suited to identify potential reversals with overbought/oversold levels, bullish/bearish divergences and bullish/bearish failure swings (emphasis added)</i>. As with all indicators, MFI should not be used by itself. A pure momentum oscillator, such as RSI, or pattern analysis can be combined with MFI to increase signal robustness."</blockquote></div><div style="text-align: justify;">As the below charts display, the weekly chart of the market and the MFI are showing divergence. A weekly time period is used in order to smooth out the potential day to day market variations. On the daily chart, the MFI trend is positive; however, the index recently rose above the overbought area of 80 on the chart. Also, market volume has been in a steady decline since late 2011 and has not picked up in spite of positive equity fund flows as noted in the first chart in this post.</div><br /><center><table style="width: auto;"><tbody><tr><td><a href="https://picasaweb.google.com/lh/photo/Dh6CG6fmc5PXyh-q0ciYR-fYVkiwW7Qp_c9ujmbNUkg?feat=embedwebsite"><img height="767" src="https://lh6.googleusercontent.com/-0gMVgO4DzoA/UY_Sg1ib2oI/AAAAAAAAIA4/JpHAnt5vJPA/s800/sp%2520mfi%25205%252010%25202013%2520weekly.PNG" width="609" /></a></td></tr><tr><td style="font-family: arial,sans-serif; font-size: 11px; text-align: right;">From <a href="https://picasaweb.google.com/116374550084895587184/TheBlogOfHORANCapitalAdvisors02?authuser=0&amp;feat=embedwebsite">The Blog of HORAN Capital Advisors</a></td></tr></tbody></table></center><br /><center><table style="width: auto;"><tbody><tr><td><a href="https://picasaweb.google.com/lh/photo/hBfDgOWSheGW9tV7_zzpo-fYVkiwW7Qp_c9ujmbNUkg?feat=embedwebsite"><img height="768" src="https://lh5.googleusercontent.com/-uPwXv1Xn3ZE/UY_Sg_zi6ZI/AAAAAAAAIA8/1Ee-GJBbNDg/s800/sp%2520mfi%25205%252010%25202013%2520daily.PNG" width="610" /></a></td></tr><tr><td style="font-family: arial,sans-serif; font-size: 11px; text-align: right;">From <a href="https://picasaweb.google.com/116374550084895587184/TheBlogOfHORANCapitalAdvisors02?authuser=0&amp;feat=embedwebsite">The Blog of HORAN Capital Advisors</a></td></tr></tbody></table></center><div style="text-align: justify;"><br /></div><div style="text-align: justify;">As with any indicator, no single one is the perfect market predictor. As an example, the <a href="http://stockcharts.com/h-sc/ui?s=$SPX&amp;p=D&amp;yr=1&amp;mn=0&amp;dy=0&amp;id=p32112459882" target="_blank">Accumulation Distribution Line (ADL) is in a very bullish pattern</a> and is based on the money flow concept as well. As the <a href="http://stockcharts.com/school/doku.php?id=chart_school:technical_indicators:accumulation_distrib" target="_blank">ADL definition notes</a>, this indicator has given off false signals as well.</div><div style="text-align: justify;"><br /></div><div style="text-align: justify;">At HORAN, we do remain positive on the market, but believe some consolidation could occur and would be healthy for the performance potential through the balance of the year. Our focus has been to reduce or sell some of the holdings in the defensive sectors and build or add to positions in the more cyclically exposed sectors that have underperformed this year, and over the last year for that matter. One stock we trimmed recently was Johnson &amp; Johnson (JNJ). We trimmed the holding for more than technical reasons, but <a href="http://stockcharts.com/h-sc/ui?s=JNJ&amp;p=D&amp;yr=1&amp;mn=0&amp;dy=0&amp;id=p49620755486" target="_blank">looking at the chart with the MFI overlay</a>, it does show some potential stock weakness ahead when looking at just the MFI.</div><div class="feedflare"> <a href="http://feeds.feedburner.com/~ff/blogspot/KfQp?a=4F23jmBuej0:LXhGK7l4SBg:yIl2AUoC8zA"><img src="http://feeds.feedburner.com/~ff/blogspot/KfQp?d=yIl2AUoC8zA" border="0"></img></a> </div><img src="http://feeds.feedburner.com/~r/blogspot/KfQp/~4/4F23jmBuej0" height="1" width="1"/>David Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.com0http://disciplinedinvesting.blogspot.com/2013/05/a-tired-bull-market.htmltag:blogger.com,1999:blog-36722043.post-32487973230334174952013-05-09T08:48:00.001-04:002013-05-09T08:48:39.938-04:00<div style="text-align: justify;">In a recent <a href="http://alphanow.thomsonreuters.com/2013/05/idea-of-the-week-focusing-on-america-may-be-a-way-to-beat-the-sp-500/" target="_blank">AlphaNow report from Thomson Reuters</a>, it shows U.S. companies that generate a majority of their revenues from the U.S. are outperforming the broader market S&amp;P 500 Index. The report highlights that <a href="http://link.reuters.com/suw77t" target="_blank">150 companies/stocks</a> generated at least 95% of their revenues within the USA and outperformed the S&amp;P 500. On a 2013 year to date basis (through May 1), they note their total return beat the S&amp;P 500: 15% vs. 12%, and 31% to 21% in the past two years.</div><br /><center><table style="width: auto;"><tbody><tr><td><a href="https://picasaweb.google.com/lh/photo/HaTe9UcHussLWmbRXX9V-efYVkiwW7Qp_c9ujmbNUkg?feat=embedwebsite"><img height="376" src="https://lh6.googleusercontent.com/-hxjI1d_G_V0/UYuZAUtp1-I/AAAAAAAAH_8/1VpkWyiaDjo/s800/us%2520focused%2520comp.PNG" width="499" /></a></td></tr><tr><td style="font-family: arial,sans-serif; font-size: 11px; text-align: right;">From <a href="https://picasaweb.google.com/116374550084895587184/TheBlogOfHORANCapitalAdvisors02?authuser=0&amp;feat=embedwebsite">The Blog of HORAN Capital Advisors</a></td></tr></tbody></table></center><br /><div style="text-align: justify;">The report also notes, "The three top overweights come in sectors which have all outperformed so far in 2013 (see chart) – financials (+13% overweight), telecom services (+11%) and utilities (+10%). That’s before adding in consumer discretionary (+2% overweight) which is the second best performing sector as of May 2." Of late though, much has been stated about the <a href="http://disciplinedinvesting.blogspot.com/2013/04/sector-rotation-may-be-underway.html" target="_blank">potential rotation underway</a> out of these more defensive sectors and into the more cyclically oriented ones. Investors need to be on guard about chasing past returns.</div><br /><center><table style="width: auto;"><tbody><tr><td><a href="https://picasaweb.google.com/lh/photo/FwbxdzqekS34qAZSRAMJj-fYVkiwW7Qp_c9ujmbNUkg?feat=embedwebsite"><img height="409" src="https://lh4.googleusercontent.com/-q1m0pjsZ2Jg/UYuZAUnL1gI/AAAAAAAAIAA/dzfsKPGJaHw/s800/sector%2520us%2520focused.PNG" width="387" /></a></td></tr><tr><td style="font-family: arial,sans-serif; font-size: 11px; text-align: right;">From <a href="https://picasaweb.google.com/116374550084895587184/TheBlogOfHORANCapitalAdvisors02?authuser=0&amp;feat=embedwebsite">The Blog of HORAN Capital Advisors</a></td></tr></tbody></table></center><div class="feedflare"> <a href="http://feeds.feedburner.com/~ff/blogspot/KfQp?a=aMeUJ3YbrX4:iTqeqFUxphM:yIl2AUoC8zA"><img src="http://feeds.feedburner.com/~ff/blogspot/KfQp?d=yIl2AUoC8zA" border="0"></img></a> </div><img src="http://feeds.feedburner.com/~r/blogspot/KfQp/~4/aMeUJ3YbrX4" height="1" width="1"/>David Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.com0http://disciplinedinvesting.blogspot.com/2013/05/us-centric-companies-outperforming.htmltag:blogger.com,1999:blog-36722043.post-70315826825382549312013-05-07T20:08:00.001-04:002013-05-07T20:08:03.202-04:00<div style="text-align: justify;">We noted in a post a week and a half ago that the market's defensive sectors have been the main driver of the S&amp;P 500 Index's strong performance this year. In this earlier post, <a href="http://disciplinedinvesting.blogspot.com/2013/04/sector-rotation-may-be-underway.html" target="_blank">Sector Rotation May Be Underway</a>, we noted investors may be rotating out of the defensive sectors and into the more cyclical ones. In that regard, <a href="http://allstarcharts.com/cyclicals-vs-staples-up-against-resistance-again/" target="_blank">J. C.Parets of All Star Charts wrote an interesting article showing the more cyclical sectors recent strong performance vs. the staples</a> sector is retesting resistance for the fourth time in two years. This number of retests has historically been a bullish indicator and could be for cyclicals in this now. The question is whether this rotation into cyclicals can be sustained and drive the market to further highs.</div><br /><center><table style="width: auto;"><tbody><tr><td><a href="https://picasaweb.google.com/lh/photo/Qn7z6oY7j4YBaZfOO7W_sefYVkiwW7Qp_c9ujmbNUkg?feat=embedwebsite"><img height="502" src="https://lh5.googleusercontent.com/-GBsFwYXWw_g/UYmWP2mchvI/AAAAAAAAH_g/sPb6zRTGAJY/s800/cyclicals%2520versus%2520staples.PNG" width="604" /></a></td></tr><tr><td style="font-family: arial,sans-serif; font-size: 11px; text-align: right;">From <a href="https://picasaweb.google.com/116374550084895587184/TheBlogOfHORANCapitalAdvisors02?authuser=0&amp;feat=embedwebsite">The Blog of HORAN Capital Advisors</a></td></tr></tbody></table></center><div style="text-align: center;"><span style="font-size: x-small;"><i>Source: <a href="http://allstarcharts.com/cyclicals-vs-staples-up-against-resistance-again/" target="_blank">All Star Charts</a></i></span></div><br />h/t: <a href="http://www.kirkreport.com/" target="_blank">The Kirk Report</a><div class="feedflare"> <a href="http://feeds.feedburner.com/~ff/blogspot/KfQp?a=IYd6tYdBjlU:tf4p2WCQ6fs:yIl2AUoC8zA"><img src="http://feeds.feedburner.com/~ff/blogspot/KfQp?d=yIl2AUoC8zA" border="0"></img></a> </div><img src="http://feeds.feedburner.com/~r/blogspot/KfQp/~4/IYd6tYdBjlU" height="1" width="1"/>David Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.com0http://disciplinedinvesting.blogspot.com/2013/05/can-cyclicals-breakout-and-provide.htmltag:blogger.com,1999:blog-36722043.post-25510073041362625542013-05-05T13:42:00.000-04:002013-05-05T13:42:21.598-04:00<div style="text-align: justify;">Ten years ago Standard and Poor's released its Equal Weighted S&amp;P 500 Index (EWI). Since that time a number of index firms have created equal weighted ETFs that investors are able to invest in directly. In S&amp;P's recently released white paper, <a href="http://us.spindices.com/documents/research/equal-weight-index-10-years.pdf?force_download=true" target="_blank">10 Years Later: Where In The World Is Equal Weight Indexing Now?</a>, they cover a great deal of the historical data on the equal weighted index relative to the more common <a href="http://finance.yahoo.com/q?s=^gspc" target="_blank">market cap weighted S&amp;P 500 Index</a>. Due to the cap weighted nature of the S&amp;P 500, one obvious characteristic is the EWI S&amp;P 500 is more heavily weighted in the smaller capitalization stocks and underweighted in the large cap stocks of the S&amp;P 500 Index. Because of this factor, S&amp;P demonstrates the equal weighted index does have a tendency to outperform more frequently in up markets than in down markets and the EWI does carry a higher beta.</div><br /><center><table style="width: auto;"><tbody><tr><td><a href="https://picasaweb.google.com/lh/photo/88ih-538jNLRn3xS7_x0vOfYVkiwW7Qp_c9ujmbNUkg?feat=embedwebsite"><img height="258" src="https://lh3.googleusercontent.com/-9UJ_nUi3DhY/UYZ8ghLqojI/AAAAAAAAH-w/-4QwTAoQ6WU/s800/equal%2520wt%2520beta%25205%25202013.PNG" width="608" /></a></td></tr><tr><td style="font-family: arial,sans-serif; font-size: 11px; text-align: right;">From <a href="https://picasaweb.google.com/116374550084895587184/TheBlogOfHORANCapitalAdvisors02?authuser=0&amp;feat=embedwebsite">The Blog of HORAN Capital Advisors</a></td></tr></tbody></table></center><br /><div style="text-align: justify;">In addition to more frequent up market outperformance, over a longer time frame, the EW S&amp;P 500 Index has outperformed the cap weighted S&amp;P 500 Index.</div><br /><center><table style="width: auto;"><tbody><tr><td><a href="https://picasaweb.google.com/lh/photo/Jz_JeRoG6C6kdsX-IXgOQ-fYVkiwW7Qp_c9ujmbNUkg?feat=embedwebsite"><img height="396" src="https://lh6.googleusercontent.com/-89_tm6IeADo/UYZ8gsYtTkI/AAAAAAAAH-0/n0v__gHpF38/s800/equal%2520wt%2520perf%25205%25202013.PNG" width="605" /></a></td></tr><tr><td style="font-family: arial,sans-serif; font-size: 11px; text-align: right;">From <a href="https://picasaweb.google.com/116374550084895587184/TheBlogOfHORANCapitalAdvisors02?authuser=0&amp;feat=embedwebsite">The Blog of HORAN Capital Advisors</a></td></tr></tbody></table></center><br /><div style="text-align: justify;">Given the emergence of technology and the tech sector leading up to the technology bubble in 2000, one might believe performance differences between equal weighted and cap weighted indices is due to the differing sector weights. However, one must keep in mind the sector weighting within the EWI is determined by the number of companies that make up the overall index. As noted by S&amp;P, </div><div style="text-align: justify;"><blockquote class="tr_bq"><i>"Since 1999, the S&amp;P 500 EWI has been consistently overweighted materials, consumer discretionary and utilities, and underweighted energy, health care and telecommunication services relative to the S&amp;P 500. However, for other sectors the situation has varied considerably over time. In fact, even for sectors for which the S&amp;P 500 EWI has been consistently overweight or underweight, the difference in concentration between the two indices has altered significantly.</i><br /><i><br />Throughout the history, the largest change in the relative sector weights of the two indices has been in the information technology (IT) sector, mainly due to the change in the sector weights of the S&amp;P 500 itself. During the technology bubble in the late 1990s, the IT sector weight of the S&amp;P 500 increased to 33% in March 2000 from 13% at the start of 1998. Correspondingly, the S&amp;P 500 EWI went from being underweight in the sector by less than 3% to being underweight by more than 20% in the same period. This has a very important implication that explains the different performance of the S&amp;P 500 EWI relative to the S&amp;P 500..."</i> </blockquote></div><div style="text-align: justify;">S&amp;P's paper does indicate the performance differences are more attributable to selection effects than allocation effects though.</div><br /><center><table style="width: auto;"><tbody><tr><td><a href="https://picasaweb.google.com/lh/photo/J5bBRjUDS_OJ_NsXTRtgLufYVkiwW7Qp_c9ujmbNUkg?feat=embedwebsite"><img height="188" src="https://lh6.googleusercontent.com/-Ya6_dbBQoL0/UYZ8goY9b5I/AAAAAAAAH-g/tFreeG6HnLE/s800/equal%2520wt%2520attribution%25205%25202013.PNG" width="564" /></a></td></tr><tr><td style="font-family: arial,sans-serif; font-size: 11px; text-align: right;">From <a href="https://picasaweb.google.com/116374550084895587184/TheBlogOfHORANCapitalAdvisors02?authuser=0&amp;feat=embedwebsite">The Blog of HORAN Capital Advisors</a></td></tr></tbody></table></center><br /><div style="text-align: justify;">A recent example of this selection impact can be seen in the below chart comparing the S&amp;P cap weighted and equal weighted (<a href="http://guggenheiminvestments.com/products/etf/details?productid=92" target="_blank">RSP</a>) performance relative to Apple's (<a href="http://finance.yahoo.com/q/pr?s=AAPL+Profile" target="_blank">AAPL</a>) stock price performance. RSP is the Guggenhiem S&amp;P 500 Equal Weighted ETF. Apple remains the largest holding in the cap weighted S&amp;P 500 Index and its significant underperformance since mid November has contributed to the cap weighted index underperforming the equal weighted index.</div><br /><center><table style="width: auto;"><tbody><tr><td><a href="https://picasaweb.google.com/lh/photo/4_Qi0UOWxS_OkU96JPu2JufYVkiwW7Qp_c9ujmbNUkg?feat=embedwebsite"><img height="327" src="https://lh6.googleusercontent.com/-nwNwmqI6HeQ/UYaMX2esulI/AAAAAAAAH_I/bDuQocxX2EI/s800/rsp%2520sp%25205%25202013.PNG" width="636" /></a></td></tr><tr><td style="font-family: arial,sans-serif; font-size: 11px; text-align: right;">From <a href="https://picasaweb.google.com/116374550084895587184/TheBlogOfHORANCapitalAdvisors02?authuser=0&amp;feat=embedwebsite">The Blog of HORAN Capital Advisors</a></td></tr></tbody></table></center><br /><div style="text-align: justify;">For investors then, an equal weighted approach may not result in outperformance on an every year basis; however, it has proven to outperform over longer time frames. Additionally, the EWI is rebalanced on a quarterly basis, thus, leading to a strategy that results in selling high and buying low.</div><br />Source:<br /><br /><a href="http://us.spindices.com/documents/research/equal-weight-index-10-years.pdf?force_download=true" target="_blank">10 Years Later: Where In The World Is Equal Weight Indexing Now?</a><br />S &amp; P Dow Jones Indices<br />By: Liyu Zeng, CFA, Director, Global Research &amp; Design<br />&nbsp;and Frank Luo, Ph.D, Head, Global Research &amp; Design<div class="feedflare"> <a href="http://feeds.feedburner.com/~ff/blogspot/KfQp?a=aY7Rn7QAA7I:EuLvT7ZMnOg:yIl2AUoC8zA"><img src="http://feeds.feedburner.com/~ff/blogspot/KfQp?d=yIl2AUoC8zA" border="0"></img></a> </div><img src="http://feeds.feedburner.com/~r/blogspot/KfQp/~4/aY7Rn7QAA7I" height="1" width="1"/>David Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.com0http://disciplinedinvesting.blogspot.com/2013/05/equal-weighted-s-500-index-insights.htmltag:blogger.com,1999:blog-36722043.post-64953931605365069322013-05-04T10:10:00.003-04:002013-05-04T10:10:51.190-04:00<div style="text-align: justify;">In this low interest rate environment, investor search parameters on Google indicate investors have a propensity for dividend paying stocks at this point in time. Last week we noted in our post, <a href="http://disciplinedinvesting.blogspot.com/2013/04/sector-rotation-may-be-underway.html" target="_blank">Sector Rotation May Be Underway</a>, that the defensive sectors in the S&amp;P 500 Index generated strong outperformance versus the more cyclical sectors this year. A common characteristic of these defensive sectors is they comprise some of the better dividend yielding stocks. A caution for investors is many of the stocks within the defensive sectors are trading at historically high valuations on a price to earnings basis.</div><center><script src="//www.google.com/trends/embed.js?hl=en-US&amp;q=dividend&amp;geo=US&amp;cmpt=q&amp;content=1&amp;cid=TIMESERIES_GRAPH_0&amp;export=5&amp;w=500&amp;h=330" type="text/javascript"></script></center><center><script src="//www.google.com/trends/embed.js?hl=en-US&amp;q=%22best+dividend+stocks%22&amp;geo=US&amp;date=1/2008+64m&amp;cmpt=q&amp;content=1&amp;cid=TIMESERIES_GRAPH_0&amp;export=5&amp;w=500&amp;h=330" type="text/javascript"></script></center><div class="feedflare"> <a href="http://feeds.feedburner.com/~ff/blogspot/KfQp?a=ilZP6Mlxhgw:ysJfoK2qOVg:yIl2AUoC8zA"><img src="http://feeds.feedburner.com/~ff/blogspot/KfQp?d=yIl2AUoC8zA" border="0"></img></a> </div><img src="http://feeds.feedburner.com/~r/blogspot/KfQp/~4/ilZP6Mlxhgw" height="1" width="1"/>David Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.com0http://disciplinedinvesting.blogspot.com/2013/05/investors-continued-search-for-yield.htmltag:blogger.com,1999:blog-36722043.post-91867895527103635092013-04-28T15:38:00.001-04:002013-04-28T15:38:41.838-04:00<div style="text-align: justify;">We have written a number of articles on the impact of inflation on future bond and stock returns. Our recent article from earlier this month, <a href="http://disciplinedinvesting.blogspot.com/2013/04/inflation-and-its-influence-on.html" target="_blank">Inflation And Its Influence On Investment Classes</a>, pointed to the fact that stocks are a good hedge against higher inflation rates versus bonds. At very high levels of inflation though, commodities are the better performing asset class.</div><div style="text-align: justify;"><br /></div><div style="text-align: justify;">The more significant factor, however, is the growth of the economy as measured by GDP. As the below chart shows, the S&amp;P 500 Index continues to move higher in spite of the fact the year over year change in inflation (blue line) is muted. The equity market performs at its worst when GDP (green bar) is contracting and the economy has entered a recessionary period. Earlier in April, the month over month change in the consumer price index was reported at minus .2%. This negative CPI report had some <a href="http://finance.yahoo.com/blogs/michael-santoli/gust-deflation-stirs-skittish-stock-market-163404101.html" target="_blank">strategist indicating the weaker equity returns for the week of 4/15 was partially due to a deflationary scare</a>. </div><br /><center><table style="width: auto;"><tbody><tr><td><a href="https://picasaweb.google.com/lh/photo/hDNPzprTyBfJ5Vnvr90uK-fYVkiwW7Qp_c9ujmbNUkg?feat=embedwebsite"><img height="383" src="https://lh5.googleusercontent.com/--PIZLCsz6l8/UX1vwisJW3I/AAAAAAAAH9U/gg3WuppdxSk/s800/inflation%2520equities%25204%252028%25202013.PNG" width="581" /></a></td></tr><tr><td style="font-family: arial,sans-serif; font-size: 11px; text-align: right;">From <a href="https://picasaweb.google.com/116374550084895587184/TheBlogOfHORANCapitalAdvisors02?authuser=0&amp;feat=embedwebsite">The Blog of HORAN Capital Advisors</a></td></tr></tbody></table></center><br /><div style="text-align: justify;"></div><div style="text-align: justify;">For investors then, paying attention to economic variables that might indicate a recession is forthcoming is of greater importance than inflation in and of itself. Some of the variables to watch are: jobless claims, durable goods orders, retail sales, existing home sales, consumer confidence and the interest rate spread. We touched on these data points in an article a few years back, <a href="http://disciplinedinvesting.blogspot.com/2009/07/economic-indicators-that-may-signal.html" target="_blank">Economic Indicators That May Signal A Bottom In The Economy</a>, when we were looking for an economic upturn.</div><div class="feedflare"> <a href="http://feeds.feedburner.com/~ff/blogspot/KfQp?a=8HQBVPMhrvM:x9FbpYrkhMA:yIl2AUoC8zA"><img src="http://feeds.feedburner.com/~ff/blogspot/KfQp?d=yIl2AUoC8zA" border="0"></img></a> </div><img src="http://feeds.feedburner.com/~r/blogspot/KfQp/~4/8HQBVPMhrvM" height="1" width="1"/>David Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.com0http://disciplinedinvesting.blogspot.com/2013/04/economic-growth-larger-influence-than.htmltag:blogger.com,1999:blog-36722043.post-84669747211769218802013-04-27T19:18:00.005-04:002013-04-27T19:18:47.003-04:00<div style="text-align: justify;">One aspect of the strong performance for the S&amp;P 500 Index so far this year has been the outperformance of the defensive market sectors. As the below chart details, the top performing sectors this year are health care (20.5%), utilities (18.8%), consumer staples (17.8%) and telecommunications (15.3%). A notable characteristic of the defensive sectors is their higher dividend yields. With the near zero interest rate environment being perpetuated by the Federal Reserve, investors seem to be allocating some of their investment dollars to these higher yielding stocks and sectors.</div><br /><center><table style="width: auto;"><tbody><tr><td><a href="https://picasaweb.google.com/lh/photo/7NUOVMQzKBx53f7yax1a9OfYVkiwW7Qp_c9ujmbNUkg?feat=embedwebsite"><img height="374" src="https://lh5.googleusercontent.com/-UdOfedTUGs4/UXxIYXePmRI/AAAAAAAAH8M/2q-pm32l96I/s800/sector%2520perf%2520YTD%25204%252026%25202013.PNG" width="431" /></a></td></tr><tr><td style="font-family: arial,sans-serif; font-size: 11px; text-align: right;">From <a href="https://picasaweb.google.com/116374550084895587184/TheBlogOfHORANCapitalAdvisors02?authuser=0&amp;feat=embedwebsite">The Blog of HORAN Capital Advisors</a></td></tr></tbody></table></center><br /><div style="text-align: justify;">Last week though saw a shift in which sectors were contributing to the market moving higher. As the below chart shows, the previously mentioned sectors that contributed to the positive market move on YTD basis were the worst performing sectors last week. Telecommunications, consumer staples, health care and utilities all were the worst performers. The more cyclically sensitive sectors performed the best: financials, materials, technology and industrials.</div><br /><center><table style="width: auto;"><tbody><tr><td><a href="https://picasaweb.google.com/lh/photo/3SLwrPQ7F-Y_Ua7BLWEODOfYVkiwW7Qp_c9ujmbNUkg?feat=embedwebsite"><img height="367" src="https://lh4.googleusercontent.com/-3p1XTIPY0hE/UXxIXv0FYEI/AAAAAAAAH8E/vf-0oLpprZA/s800/sector%2520perf%2520week%25204%252026%25202013.PNG" width="431" /></a></td></tr><tr><td style="font-family: arial,sans-serif; font-size: 11px; text-align: right;">From <a href="https://picasaweb.google.com/116374550084895587184/TheBlogOfHORANCapitalAdvisors02?authuser=0&amp;feat=embedwebsite">The Blog of HORAN Capital Advisors</a></td></tr></tbody></table></center><br /><div style="text-align: justify;">A characteristic of the defensive sectors at this point in time is they are trading at higher P/E multiples relative to the S&amp;P 500 Index. The utilities, staples and health care sectors are each trading at multiples of near twenty times earnings or higher.</div><br /><center><table style="width: auto;"><tbody><tr><td><a href="https://picasaweb.google.com/lh/photo/aYYFwuiKN_7-8Vum-d_CL-fYVkiwW7Qp_c9ujmbNUkg?feat=embedwebsite"><img height="354" src="https://lh5.googleusercontent.com/-Qv5WeAgJ-9g/UXxIYIFUbTI/AAAAAAAAH8I/kFPf6grngpY/s800/sector%2520ret%2520and%2520pe%25204%252026%25202013.PNG" width="448" /></a></td></tr><tr><td style="font-family: arial,sans-serif; font-size: 11px; text-align: right;">From <a href="https://picasaweb.google.com/116374550084895587184/TheBlogOfHORANCapitalAdvisors02?authuser=0&amp;feat=embedwebsite">The Blog of HORAN Capital Advisors</a></td></tr></tbody></table></center><br /><div style="text-align: justify;">For investors, keep in mind that stocks/sectors will trade on future earnings growth prospects. <a href="http://www.factset.com/insight/2013/4/earningsinsight_4.26.13" target="_blank">Factset's earnings summary report released</a> on Friday does show the sectors with the best anticipated earnings growth in 2014 are the more cyclically exposed sectors and not the defensive sectors that have worked so well for investors this year.</div><br /><center><table style="width: auto;"><tbody><tr><td><a href="https://picasaweb.google.com/lh/photo/c5kgAKEH6jDEya0p4gBKpOfYVkiwW7Qp_c9ujmbNUkg?feat=embedwebsite"><img height="371" src="https://lh3.googleusercontent.com/-4u4kazndbOM/UXxNVXO9EgI/AAAAAAAAH8w/Lb_iVClnOIo/s800/eps%2520growth%2520CY%25202014.PNG" width="658" /></a></td></tr><tr><td style="font-family: arial,sans-serif; font-size: 11px; text-align: right;">From <a href="https://picasaweb.google.com/116374550084895587184/TheBlogOfHORANCapitalAdvisors02?authuser=0&amp;feat=embedwebsite">The Blog of HORAN Capital Advisors</a></td></tr></tbody></table></center><div class="feedflare"> <a href="http://feeds.feedburner.com/~ff/blogspot/KfQp?a=idFPjid2_ZI:AA74VT4eKg4:yIl2AUoC8zA"><img src="http://feeds.feedburner.com/~ff/blogspot/KfQp?d=yIl2AUoC8zA" border="0"></img></a> </div><img src="http://feeds.feedburner.com/~r/blogspot/KfQp/~4/idFPjid2_ZI" height="1" width="1"/>David Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.com0http://disciplinedinvesting.blogspot.com/2013/04/sector-rotation-may-be-underway.htmltag:blogger.com,1999:blog-36722043.post-58014895042323926922013-04-23T17:30:00.000-04:002013-04-23T19:02:30.841-04:00<div style="text-align: justify;"><a href="http://www.betterinvesting.org/Public/PublicMostActiveStocks/PublicMostActiveStocks/default.htm">Better Investing Magazine</a> publishes the most active stocks reported by its membership. The list is based on an informal sampling of Better Investing members. Below is the list of most active stocks as of April 23, 2013.</div><br /><center><iframe frameborder="0" height="300" src="https://docs.google.com/spreadsheet/pub?key=0ApEoA4TOB4wPdEVhc1NTWS1XOUh5Um05MElVcVNWYWc&amp;output=html&amp;widget=true" width="500"></iframe></center><div style="text-align: center;"><a href="https://docs.google.com/spreadsheet/ccc?key=0ApEoA4TOB4wPdEVhc1NTWS1XOUh5Um05MElVcVNWYWc&amp;usp=sharing"><i>Full View</i></a></div><div class="feedflare"> <a href="http://feeds.feedburner.com/~ff/blogspot/KfQp?a=R8O_d-4KYH0:Ib3mewdPJCo:yIl2AUoC8zA"><img src="http://feeds.feedburner.com/~ff/blogspot/KfQp?d=yIl2AUoC8zA" border="0"></img></a> </div><img src="http://feeds.feedburner.com/~r/blogspot/KfQp/~4/R8O_d-4KYH0" height="1" width="1"/>David Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.com0http://disciplinedinvesting.blogspot.com/2013/04/better-investing-members-favored-stock.htmltag:blogger.com,1999:blog-36722043.post-67307301066145718852013-04-22T12:23:00.000-04:002013-04-22T12:23:02.211-04:00<div style="text-align: justify;">If one is a bull at the moment, Barron's cover for this week's magazine is not one you wanted to see. These types of headlines tend to serve as contrarian market indicators. Admittedly, this market's rise since November has been littered with mixed signals.</div><br /><center><table style="width: auto;"><tbody><tr><td><a href="https://picasaweb.google.com/lh/photo/Rtby3cyjsjBmsSRYEwNZbefYVkiwW7Qp_c9ujmbNUkg?feat=embedwebsite"><img height="316" src="https://lh6.googleusercontent.com/-OthtsrBs82I/UXVi1UwP1hI/AAAAAAAAH7o/Gk8ClBb1R6w/s800/barrons%2520mag%2520cover%25204%252022%25202013.PNG" width="313" /></a></td></tr><tr><td style="font-family: arial,sans-serif; font-size: 11px; text-align: right;">From <a href="https://picasaweb.google.com/116374550084895587184/TheBlogOfHORANCapitalAdvisors02?authuser=0&amp;feat=embedwebsite">The Blog of HORAN Capital Advisors</a></td></tr></tbody></table></center><div class="feedflare"> <a href="http://feeds.feedburner.com/~ff/blogspot/KfQp?a=dn2_Egx8g5o:qCk1RiQGCUY:yIl2AUoC8zA"><img src="http://feeds.feedburner.com/~ff/blogspot/KfQp?d=yIl2AUoC8zA" border="0"></img></a> </div><img src="http://feeds.feedburner.com/~r/blogspot/KfQp/~4/dn2_Egx8g5o" height="1" width="1"/>David Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.com0http://disciplinedinvesting.blogspot.com/2013/04/contrarian-cover.htmltag:blogger.com,1999:blog-36722043.post-76548060969243577672013-04-22T11:27:00.001-04:002013-04-22T11:30:47.124-04:00<div style="text-align: justify;">Our firm's <a href="http://www.horancapitaladvisors.com/Portals/horancapitaladvisors/Documents/News/HCA%20Investor%20Letter%20Q1%202013.pdf" target="_blank">First Quarter 2013 Investor Letter</a> provides a review of Q1 with thoughts on the outlook ahead. One factor we touch on in the Investor Letter is the fact the defensive sectors of the market have been contributing the most to the market's advance this year.&nbsp; One factor we believe is contributing to this strength is investors search for yield in dividend paying stocks. Also included in the letter is a discussion on intra-year market declines. A near-term equity market pullback would not be surprising. However, a protracted U.S. or global economic recession seems unlikely barring an unforeseen shock, like an outbreak of war precipitated by North Korea.</div><br /><center><table style="width: auto;"><tbody><tr><td><a href="http://www.horancapitaladvisors.com/Portals/horancapitaladvisors/Documents/News/HCA%20Investor%20Letter%20Q1%202013.pdf"><img height="179" src="https://lh3.googleusercontent.com/-3UJ6zSQVJTs/UXVVms7PDII/AAAAAAAAH7Q/OyOPgQnnmoQ/s800/Q1%25202013.PNG" width="620" /></a></td></tr><tr><td style="font-family: arial,sans-serif; font-size: 11px; text-align: right;">From <a href="https://picasaweb.google.com/116374550084895587184/TheBlogOfHORANCapitalAdvisors02?authuser=0&amp;feat=embedwebsite">The Blog of HORAN Capital Advisors</a></td></tr></tbody></table></center><br /><div style="text-align: justify;">We believe there are variables we can control, such as risk mitigation and the avoidance of euphoric markets, but there are things we cannot control, such as the Fed and North Korea. Our clients ask us to focus on the things we can control and the things that matter most to them. If we execute on that basis, we’ve formed a valued partnership.</div><div style="text-align: justify;"><br /></div><div style="text-align: justify;">The complete Letter can be accessed directly from our website at this link: <a href="http://www.horancapitaladvisors.com/Portals/horancapitaladvisors/Documents/News/HCA%20Investor%20Letter%20Q1%202013.pdf" target="_blank">1st Quarter 2013 Investor Letter</a>.</div><div class="feedflare"> <a href="http://feeds.feedburner.com/~ff/blogspot/KfQp?a=uZsZtPHtho4:jxhPvHU4geY:yIl2AUoC8zA"><img src="http://feeds.feedburner.com/~ff/blogspot/KfQp?d=yIl2AUoC8zA" border="0"></img></a> </div><img src="http://feeds.feedburner.com/~r/blogspot/KfQp/~4/uZsZtPHtho4" height="1" width="1"/>David Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.com0http://disciplinedinvesting.blogspot.com/2013/04/investor-letter-focusing-on-variables.htmltag:blogger.com,1999:blog-36722043.post-56592657299732466742013-04-20T09:23:00.000-04:002013-04-20T10:05:03.623-04:00<div style="text-align: justify;">The equity put/call ratio is above .80 once again and is at a level last seen in early November of last year. We noted the elevated ratio in November last year when it equaled .82 and the <a href="http://finance.yahoo.com/q?s=^GSPC" target="_blank">S&amp;P 500 Index</a> was trading at 1,379. Since that November 9th report, the S&amp;P 500 Index is up 12.5%. Could the current ratio of .85 be suggesting <a href="http://disciplinedinvesting.blogspot.com/2013/04/bulls-turn-into-bears.html" target="_blank">excessive market bearishness</a> again? As we noted then, the market does have a history of reversing at P/C ratios above .80.</div><div style="text-align: justify;"><blockquote class="tr_bq">"The equity P/C ratio tends to measure the sentiment of the individual investor by dividing put volume by call volume. At the extremes, this particular measure is a contrarian one; hence, P/C ratios above 1.0 signal overly bearish sentiment from the individual investor. This indicator's average over the last 5-years is approximately .7, indicating the individual investor has been generally mostly bullish and more active on the call volume side" </blockquote></div><br /><center><table style="width: auto;"><tbody><tr><td><a href="https://picasaweb.google.com/lh/photo/qtGo9kAJtlYg7_zZLDAZ_ufYVkiwW7Qp_c9ujmbNUkg?feat=embedwebsite"><img height="385" src="https://lh4.googleusercontent.com/-TzKX-Mha9M4/UXKV0JVJCTI/AAAAAAAAH64/Hx_iJ53nPDs/s800/put%2520call%2520ratio%25204%252019%25202013.PNG" width="513" /></a></td></tr><tr><td style="font-family: arial,sans-serif; font-size: 11px; text-align: right;">From <a href="https://picasaweb.google.com/116374550084895587184/TheBlogOfHORANCapitalAdvisors02?authuser=0&amp;feat=embedwebsite">The Blog of HORAN Capital Advisors</a></td></tr></tbody></table></center><div class="feedflare"> <a href="http://feeds.feedburner.com/~ff/blogspot/KfQp?a=tzOIC-KHIIE:G5ME9gNtAVw:yIl2AUoC8zA"><img src="http://feeds.feedburner.com/~ff/blogspot/KfQp?d=yIl2AUoC8zA" border="0"></img></a> </div><img src="http://feeds.feedburner.com/~r/blogspot/KfQp/~4/tzOIC-KHIIE" height="1" width="1"/>David Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.com0http://disciplinedinvesting.blogspot.com/2013/04/equity-putcall-ratio-at-level-last-seen.htmltag:blogger.com,1999:blog-36722043.post-33572704999152610552013-04-20T08:54:00.002-04:002013-04-20T08:54:22.293-04:00<div style="text-align: justify;">With about 20% of companies in the <a href="http://finance.yahoo.com/q?s=^GSPC" target="_blank">S&amp;P 500 Index</a> reporting earnings, 70% have reported earnings exceeding analyst expectations. This is above the long term average beat rate of 63%. However, only 44% have reported revenue above analyst expectations, which is below the long term average of 62%. This suggests the EPS beat rate is being driven by cost cutting versus higher demand. As the below chart shows, 58% of the reporting companies that beat their EPS estimate also missed on revenue.</div><center><table style="width: auto;"><tbody><tr><td><a href="https://picasaweb.google.com/lh/photo/5qI2hOsTSu-JIPz-xHTLXefYVkiwW7Qp_c9ujmbNUkg?feat=embedwebsite"><img height="380" src="https://lh3.googleusercontent.com/-Pu_ZYro3Hog/UXKKNyWlKfI/AAAAAAAAH6Q/lkpi-ihQ8Rs/s800/eps%2520Q1%25202013.PNG" width="468" /></a></td></tr><tr><td style="font-family: arial,sans-serif; font-size: 11px; text-align: right;">From <a href="https://picasaweb.google.com/116374550084895587184/TheBlogOfHORANCapitalAdvisors02?authuser=0&amp;feat=embedwebsite">The Blog of HORAN Capital Advisors</a></td></tr></tbody></table></center><div style="text-align: center;"><span style="font-size: x-small;"><i>Source: <a href="http://thomsonreuters.com/" target="_blank">Thomson Reuters</a></i></span></div><br /><div style="text-align: justify;">The growth rate of earnings on a year over year (YOY) basis for Q1 2013 is a low 2.1% in spite of the fact analyst had cut earnings estimates going into the first quarter.&nbsp;</div><div style="text-align: justify;"><br /></div><div style="text-align: justify;">Lastly, the number of negative pre-announcements remains high. Thomson Reuters reports there have been 112 negative EPS pre-announcements versus 26 positive ones. This results in a negative to positive ratio of 4.3 for the S&amp;P 500 Index companies. Thomson notes, this would be the highest N/P ratio since Q3 of 2001.</div><div style="text-align: justify;"><br /></div><div style="text-align: justify;">One factor that seems to be driving revenue growth weakness for the larger companies that comprise the S&amp;P 500 Index appears to be weakness in business outside the U.S. The Bespoke Investment Group prepared a chart showing sector performance versus percentage of revenue in the U.S. Those sectors that have companies that generate a smaller percentage of their revenue in the U.S. have been the weaker performers.</div><br /><center><table style="width: auto;"><tbody><tr><td><a href="https://picasaweb.google.com/lh/photo/Jyset9BTKuzZBpw9DzSpS-fYVkiwW7Qp_c9ujmbNUkg?feat=embedwebsite"><img height="311" src="https://lh6.googleusercontent.com/-heEmLoi2w7w/UXKNXxE4uZI/AAAAAAAAH6g/Y6B51noHGhI/s800/dom%2520rev%2520vs%2520perf%2520Q1%25202013.PNG" width="572" /></a></td></tr><tr><td style="font-family: arial,sans-serif; font-size: 11px; text-align: right;">From <a href="https://picasaweb.google.com/116374550084895587184/TheBlogOfHORANCapitalAdvisors02?authuser=0&amp;feat=embedwebsite">The Blog of HORAN Capital Advisors</a></td></tr></tbody></table></center><div style="text-align: center;"><span style="font-size: x-small;"><i>Source: <a href="http://www.bespokeinvest.com/thinkbig/2013/4/19/one-key-trait-driving-performance.html" target="_blank">Bespoke Investment Group</a></i></span></div><br /><div style="text-align: justify;">A part of this is related to issues in the euro zone as well as a slow down in the emerging market economies. The other factor is the strength of the U.S. Dollar, as we wrote about earlier this week in an article titled, <a href="http://disciplinedinvesting.blogspot.com/2013/04/stronger-us-dollar-attracting.html" target="_blank">Stronger U.S. Dollar Attracting Investment Flows To U.S. Assets</a>.</div><div style="text-align: justify;"><br /></div><div style="text-align: justify;">For investors the economies around the world continue to adjust to higher debt levels and artificial stimulus by central banks. The resulting economic growth rates are ones that are slower or slowing resulting in a separation of the winners and losers at the company level.</div><div class="feedflare"> <a href="http://feeds.feedburner.com/~ff/blogspot/KfQp?a=o4vkLt9EfM8:Gm-58JMd8eI:yIl2AUoC8zA"><img src="http://feeds.feedburner.com/~ff/blogspot/KfQp?d=yIl2AUoC8zA" border="0"></img></a> </div><img src="http://feeds.feedburner.com/~r/blogspot/KfQp/~4/o4vkLt9EfM8" height="1" width="1"/>David Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.com0http://disciplinedinvesting.blogspot.com/2013/04/cost-cutting-is-driving-earnings-beats.htmltag:blogger.com,1999:blog-36722043.post-44745125094831349652013-04-18T10:45:00.001-04:002013-04-18T10:45:41.910-04:00<div style="text-align: justify;">We are wrapping up our quarterly Investor Letter and one item we discuss in the Letter is the magnitude of intra-year market corrections. As the below chart shows, since 1980 the market has experienced an intra-year correction averaging 14.7%. In spite of these corrections, the market has generated positive returns in 25 of the 33 years that are shown.</div><br /><center><table style="width: auto;"><tbody><tr><td><a href="https://picasaweb.google.com/lh/photo/TzRYmh1ymSA4TlNBo_auqefYVkiwW7Qp_c9ujmbNUkg?feat=embedwebsite"><img height="452" src="https://lh5.googleusercontent.com/-7JENrkn_wHY/UXAESIqg7AI/AAAAAAAAH5w/bKNSPKf40jE/s800/intra%2520year%2520declines.PNG" width="603" /></a></td></tr><tr><td style="font-family: arial,sans-serif; font-size: 11px; text-align: right;">From <a href="https://picasaweb.google.com/116374550084895587184/TheBlogOfHORANCapitalAdvisors02?authuser=0&amp;feat=embedwebsite">The Blog of HORAN Capital Advisors</a></td></tr></tbody></table></center><div style="text-align: center;"><i>Source: <a href="https://www.jpmorganfunds.com/cm/Satellite?UserFriendlyURL=browseslides&amp;pagename=jpmfVanityWrapper" target="_blank">JP Morgan's Guide to the Markets</a></i></div><div class="feedflare"> <a href="http://feeds.feedburner.com/~ff/blogspot/KfQp?a=DY7yFGRH7P4:kZg8qo2ic8k:yIl2AUoC8zA"><img src="http://feeds.feedburner.com/~ff/blogspot/KfQp?d=yIl2AUoC8zA" border="0"></img></a> </div><img src="http://feeds.feedburner.com/~r/blogspot/KfQp/~4/DY7yFGRH7P4" height="1" width="1"/>David Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.com0http://disciplinedinvesting.blogspot.com/2013/04/expect-equity-market-correction.htmltag:blogger.com,1999:blog-36722043.post-5312462183754394122013-04-16T20:33:00.001-04:002013-04-16T20:33:59.287-04:00<div style="text-align: justify;">The impact of central banks around the globe instituting quantitative easing (QE) programs has resulted in a race to the bottom for country currencies. <a href="http://finance.yahoo.com/q?s=^N225" target="_blank">Japan is the latest country to announce and implement an expanded QE program</a>. Earlier this year the Bank of Japan (BoJ) announced&nbsp; that it would spend an additional $155 billion on stimulus projects a month on top of a of the current stimulus of $410 billion. The impact on the Yen has been to weaken it. For Japanese investors, they can buy U.S. Dollar denominated investments and as the Yen weakens relative to the U.S. Dollar, get enhanced returns when converting the Dollars back to Yen.</div><div style="text-align: justify;"><br /></div><div style="text-align: justify;">One attractive area for foreign investors has been the corporate bond market. As the below chart of the iShares Total Core Bond ETF (<a href="http://finance.yahoo.com/q/pr?s=AGG+Profile" target="_blank">AGG</a>) shows, since November 1, 2012, the AGG has returned a negative 1%. The return of AGG in Yen though translates into a return of over 21%.</div><br /><center><table style="width: auto;"><tbody><tr><td><a href="https://picasaweb.google.com/lh/photo/xlRi6TLEyXwlh9drifTEj-fYVkiwW7Qp_c9ujmbNUkg?feat=embedwebsite"><img height="384" src="https://lh3.googleusercontent.com/-_rh4tf9KHdw/UW3hVjeT30I/AAAAAAAAH40/R4ftRKu5mbU/s800/agg%2520yen.PNG" width="505" /></a></td></tr><tr><td style="font-family: arial,sans-serif; font-size: 11px; text-align: right;">From <a href="https://picasaweb.google.com/116374550084895587184/TheBlogOfHORANCapitalAdvisors02?authuser=0&amp;feat=embedwebsite">The Blog of HORAN Capital Advisors</a></td></tr></tbody></table></center><br /><div style="text-align: justify;">For a U.S. investor who invests in the <a href="http://finance.yahoo.com/q?s=^N225" target="_blank">Nikkei</a>, the strong Dollar/weak Yen can work in reverse. Although the Nikkei is up almost 50% since November of last year, when converting those returns back to Dollars, the Nikkei index is up 21% in U.S. Dollar terms.</div><br /><center><table style="width: auto;"><tbody><tr><td><a href="https://picasaweb.google.com/lh/photo/Gy5-0TaLbuqlhHom-c-MQefYVkiwW7Qp_c9ujmbNUkg?feat=embedwebsite"><img height="390" src="https://lh6.googleusercontent.com/-YKCqCSFO4Sc/UW3ndiG2H2I/AAAAAAAAH5Y/zPfzhjQgTtM/s800/nikkei%2520and%2520sp%2520usd.PNG" width="522" /></a></td></tr><tr><td style="font-family: arial,sans-serif; font-size: 11px; text-align: right;">From <a href="https://picasaweb.google.com/116374550084895587184/TheBlogOfHORANCapitalAdvisors02?authuser=0&amp;feat=embedwebsite">The Blog of HORAN Capital Advisors</a></td></tr></tbody></table></center><br /><div style="text-align: justify;">Two added cautions for U.S investors in this race to the bottom with respect to currencies is the fact the U.S. is turning out to have the stronger currency. The stronger Dollar is attracting foreign in flows, but what happens when the Dollar begins to weaken? Will foreign investors sell U.S. assets? Secondly, the <a href="http://disciplinedinvesting.blogspot.com/2008/08/slowing-global-economy-and-stronger.html" target="_blank">stronger Dollar will put downward pressure on multinational company earnings</a> that are generated overseas. Certainly companies can hedge their currency exposure; however, this is not an easy game to play.</div><div class="feedflare"> <a href="http://feeds.feedburner.com/~ff/blogspot/KfQp?a=2tm7vuc0S6c:ZAJ15I2cc8E:yIl2AUoC8zA"><img src="http://feeds.feedburner.com/~ff/blogspot/KfQp?d=yIl2AUoC8zA" border="0"></img></a> </div><img src="http://feeds.feedburner.com/~r/blogspot/KfQp/~4/2tm7vuc0S6c" height="1" width="1"/>David Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.com0http://disciplinedinvesting.blogspot.com/2013/04/stronger-us-dollar-attracting.htmltag:blogger.com,1999:blog-36722043.post-26706832940131268252013-04-11T11:46:00.000-04:002013-04-11T12:09:57.709-04:00<div style="text-align: justify;">Today's release of the <a href="http://www.aaii.com/sentimentsurvey" target="_blank">American Association of Individual Investors</a> sentiment reading saw an enormous drop in bullish sentiment by individual investors. Bullish investor sentiment dropped 16.2 percentage points and saw the bull/bear spread reported at -35.2%. This is the most negative spread since it was reported at -36.1% on July 8, 2010. The bullish sentiment was last at this level on March 5, 2009, near the market low reached at the height of the financial market crisis. The sentiment reading is only one data point; however, investors should keep in mind this contrarian indicator is most accurate at its extreme. Today's reading qualifies as an extreme, almost two standard deviations below its average reading of 38.9%.</div><br /><center><table style="width: auto;"><tbody><tr><td><a href="https://picasaweb.google.com/lh/photo/RGShVEWVy84-mwHXBeIjJ-fYVkiwW7Qp_c9ujmbNUkg?feat=embedwebsite"><img height="370" src="https://lh3.googleusercontent.com/-d5PBZr1me-M/UWbZQQkXktI/AAAAAAAAH4Q/ZKaA2AiKN2U/s800/sentiment%25204%252011%25202013.PNG" width="589" /></a></td></tr><tr><td style="font-family: arial,sans-serif; font-size: 11px; text-align: right;">From <a href="https://picasaweb.google.com/116374550084895587184/TheBlogOfHORANCapitalAdvisors02?authuser=0&amp;feat=embedwebsite">The Blog of HORAN Capital Advisors</a></td></tr></tbody></table></center><br /><div style="text-align: justify;">Additionally, fund flow data would indicate this has been a stealth rally that has left many equity investors behind. The blue bars in the below chart is the rolling one year sum of equity mutual fund flows. Not shown below, however, fund flows have turned positive for the first two months of the year.</div><br /><center><table style="width: auto;"><tbody><tr><td><a href="https://picasaweb.google.com/lh/photo/kdc87rASoW28b24NQNQyVufYVkiwW7Qp_c9ujmbNUkg?feat=embedwebsite"><img height="374" src="https://lh6.googleusercontent.com/-iLRuqO3Ng9o/UWbZQSBanBI/AAAAAAAAH4M/Q-n9xzqKRyM/s800/fund%2520flows%2520and%2520S%2526P%25204%25202013.PNG" width="496" /></a></td></tr><tr><td style="font-family: arial,sans-serif; font-size: 11px; text-align: right;">From <a href="https://picasaweb.google.com/116374550084895587184/TheBlogOfHORANCapitalAdvisors02?authuser=0&amp;feat=embedwebsite">The Blog of HORAN Capital Advisors</a></td></tr></tbody></table></center><br />Updated 12:08pm 4/11/2013:<br /><br /><a href="http://blog.aaii.com/?cat=3" target="_blank"><u><b>AAII's response to survey results:</b></u></a><br /><div style="text-align: justify;"><blockquote class="tr_bq">"...A total of 145 AAII members took the survey this week. This is down from the three-month average of 330 responses. A weekly “reminder” email normally sent to a sample of our members was unintentionally not sent this week. Previous drops in the number of respondents on a given week have not resulted in the magnitude of change recorded in this week’s survey, however. Furthermore, 145 is not an abnormally low number of responses for the survey...."</blockquote></div><div class="feedflare"> <a href="http://feeds.feedburner.com/~ff/blogspot/KfQp?a=TrlysDwgLr0:QwNJUSK1sVQ:yIl2AUoC8zA"><img src="http://feeds.feedburner.com/~ff/blogspot/KfQp?d=yIl2AUoC8zA" border="0"></img></a> </div><img src="http://feeds.feedburner.com/~r/blogspot/KfQp/~4/TrlysDwgLr0" height="1" width="1"/>David Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.com0http://disciplinedinvesting.blogspot.com/2013/04/bulls-turn-into-bears.htmltag:blogger.com,1999:blog-36722043.post-77578011372761406752013-04-08T20:20:00.000-04:002013-04-08T20:20:06.211-04:00<div style="text-align: justify;">An investment strategy some investors follow at the beginning of each year is investing in the <a href="http://www.dogsofthedow.com/ddogytd.htm" target="_blank">Dogs of the Dow</a>. As noted in prior posts, the Dow Dog strategy consists of selecting the ten stocks that have the highest dividend yield from the stocks in the Dow Jones Industrial Index (<a href="http://finance.yahoo.com/q?s=^DJI" target="_blank">DJIA</a>) after the close of business on the last trading day of the year. Once the ten stocks are determined, an investor would invest an equal dollar amount in each of the ten stocks and hold them for the entire year. The strategy has <a href="http://www.dogsofthedow.com/dogyrs.htm" target="_blank">generated mixed results over the years</a>.</div><div style="text-align: justify;"><br /></div><div style="text-align: justify;">For the Dow Dog investor this year though, the dogs are outperforming the Dow Index as well as the <a href="http://finance.yahoo.com/q?s=^gspc" target="_blank">S&amp;P 500 Index</a> (10.5% return YTD) as noted in the below table. As of the market's close today, the Dow Dogs have returned 15.9% versus the Dow Industrial Index return of 11.5%.</div><br /><center><table style="width: auto;"><tbody><tr><td><a href="https://picasaweb.google.com/lh/photo/eJmfnxEC6VVxV6OrCVPs2efYVkiwW7Qp_c9ujmbNUkg?feat=embedwebsite"><img height="437" src="https://lh3.googleusercontent.com/-Me3pTONVctg/UWNc1PkngtI/AAAAAAAAH3U/pjv9_m_0Iuw/s800/dogs%2520of%2520dow%2520perf%25204%25208%25202013.PNG" width="739" /></a></td></tr><tr><td style="font-family: arial,sans-serif; font-size: 11px; text-align: right;">From <a href="https://picasaweb.google.com/116374550084895587184/TheBlogOfHORANCapitalAdvisors02?authuser=0&amp;feat=embedwebsite">The Blog of HORAN Capital Advisors</a></td></tr></tbody></table></center><div style="text-align: center;"><i>Source: <a href="http://www.dogsofthedow.com/" target="_blank">Dogs of the Dow</a></i></div><div class="feedflare"> <a href="http://feeds.feedburner.com/~ff/blogspot/KfQp?a=gyrlsXy9rBM:3ZIs8L8dY64:yIl2AUoC8zA"><img src="http://feeds.feedburner.com/~ff/blogspot/KfQp?d=yIl2AUoC8zA" border="0"></img></a> </div><img src="http://feeds.feedburner.com/~r/blogspot/KfQp/~4/gyrlsXy9rBM" height="1" width="1"/>David Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.com0http://disciplinedinvesting.blogspot.com/2013/04/dow-dogs-are-outperforming-this-year.htmltag:blogger.com,1999:blog-36722043.post-84386620309017791422013-04-07T16:52:00.002-04:002013-04-07T17:21:37.047-04:00<div style="text-align: justify;">The weak jobs report was cited as a reason investors sold stocks on Friday. More importantly though is answering the question why the jobs report was so weak. Expectations for the employment report were for payrolls to increase in excess of 190,000 and the <a href="http://www.bls.gov/news.release/pdf/empsit.pdf" target="_blank">employment report from BLS reported only 88,000 jobs</a> were created in March.</div><div style="text-align: justify;"><br /></div><div style="text-align: justify;">As soon as the number was reported, nearly all commentators cited sequestration as the primary cause of the weak report; however, only 7,000 government jobs were lost last month. One area that experienced particularly concerning weakness was in the retail segment which saw a loss of 24,100 jobs. Weakness in retail is a concern as consumers account for nearly 70% of economic growth.</div><br /><center><table style="width: auto;"><tbody><tr><td><a href="https://picasaweb.google.com/lh/photo/WJLtmyJF2Mf82vQjaHUtdufYVkiwW7Qp_c9ujmbNUkg?feat=embedwebsite"><img height="398" src="https://lh5.googleusercontent.com/-hVYpcuh03H8/UWHXXM_PGnI/AAAAAAAAH2s/YocqZO_JLlQ/s800/employment%2520chg%25203%25202013.PNG" width="437" /></a></td></tr><tr><td style="font-family: arial,sans-serif; font-size: 11px; text-align: right;">From <a href="https://picasaweb.google.com/116374550084895587184/TheBlogOfHORANCapitalAdvisors02?authuser=0&amp;feat=embedwebsite">The Blog of HORAN Capital Advisors</a></td></tr></tbody></table></center><br /><div style="text-align: justify;">In addition to sequestration, Congress and the White House managed to hammer out a deal at the end of last year that averted going over the so-called fiscal cliff. A part of this agreement included tax increases, thus taking money out of the private sector. As the below chart shows, revenue taken in by the government now exceeds the revenue level preceding the financial crisis. These figures represent data through year end and given the higher tax rates, I expect Q1 2013 revenues will continue to increase. </div><br /><center><table style="width: auto;"><tbody><tr><td><a href="https://picasaweb.google.com/lh/photo/O1BxbLWqUJEV7rwUwoyjaOfYVkiwW7Qp_c9ujmbNUkg?feat=embedwebsite"><img height="371" src="https://lh6.googleusercontent.com/-hUn5yv4WGlc/UWHUq9Qh9LI/AAAAAAAAH2I/_Wrd5dEl7s4/s800/fed%2520govt%2520receipts.PNG" width="615" /></a></td></tr><tr><td style="font-family: arial,sans-serif; font-size: 11px; text-align: right;">From <a href="https://picasaweb.google.com/116374550084895587184/TheBlogOfHORANCapitalAdvisors02?authuser=0&amp;feat=embedwebsite">The Blog of HORAN Capital Advisors</a></td></tr></tbody></table></center><br /><div style="text-align: justify;">Also, in spite of these higher federal revenues, the growth of the federal debt seemingly grows unabated.</div><br /><center><table style="width: auto;"><tbody><tr><td><a href="https://picasaweb.google.com/lh/photo/h92jIWPv7oNcXMcv93wIM-fYVkiwW7Qp_c9ujmbNUkg?feat=embedwebsite"><img height="372" src="https://lh3.googleusercontent.com/-5Po26D62Zr0/UWHUuNol7bI/AAAAAAAAH2Q/uCpPlONn4fY/s800/fed%2520debt%25203%25202013.PNG" width="614" /></a></td></tr><tr><td style="font-family: arial,sans-serif; font-size: 11px; text-align: right;">From <a href="https://picasaweb.google.com/116374550084895587184/TheBlogOfHORANCapitalAdvisors02?authuser=0&amp;feat=embedwebsite">The Blog of HORAN Capital Advisors</a></td></tr></tbody></table></center><br /><div style="text-align: justify;">In our estimation, sequestration has had a limited impact on the March employment report. What appears to be having a larger influence is the higher rate of taxation approved by Washington at year end last year. Continuing to take money out of the private sector is not a recipe for a stronger economy and stronger job growth especially when the funds are not used to balance the federal budget. </div><div class="feedflare"> <a href="http://feeds.feedburner.com/~ff/blogspot/KfQp?a=E8Uwg7hvEJs:_VA4-IOSt3g:yIl2AUoC8zA"><img src="http://feeds.feedburner.com/~ff/blogspot/KfQp?d=yIl2AUoC8zA" border="0"></img></a> </div><img src="http://feeds.feedburner.com/~r/blogspot/KfQp/~4/E8Uwg7hvEJs" height="1" width="1"/>David Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.com0http://disciplinedinvesting.blogspot.com/2013/04/higher-tax-rates-not-sequestration-more.htmltag:blogger.com,1999:blog-36722043.post-75147222595377463032013-04-06T12:48:00.001-04:002013-04-06T12:48:32.938-04:00<div style="text-align: justify;">One aspect influencing the economy and the markets is the Federal Reserve's stimulative monetary policy via its Quantitative Easing (QE) programs. A concern for market participants is the impact on inflation resulting from the QE programs. Current CPI data shows little inflationary impact; however, is there a point in the future where inflation takes hold? If so, how should investors position their investment portfolios. First though, below are several charts confirming the Fed's influence on some economic/monetary variables.</div><ul><li>Significant growth in the monetary base continues unabatted:</li></ul><center><table style="width: auto;"><tbody><tr><td><a href="https://picasaweb.google.com/lh/photo/UYqNJBabJD8hlmK6zJMjLOfYVkiwW7Qp_c9ujmbNUkg?feat=embedwebsite"><img height="373" src="https://lh6.googleusercontent.com/-chkcswqAIMg/UWA_BViA4-I/AAAAAAAAH0s/-M2lj7uer3g/s800/MZM%25204%25202013.PNG" width="623" /></a></td></tr><tr><td style="font-family: arial,sans-serif; font-size: 11px; text-align: right;">From <a href="https://picasaweb.google.com/116374550084895587184/TheBlogOfHORANCapitalAdvisors02?authuser=0&amp;feat=embedwebsite">The Blog of HORAN Capital Advisors</a></td></tr></tbody></table></center><ul><li>The money supply seems to be "trapped" in banks and is showing up as excess reserves:</li></ul><center><table style="width: auto;"><tbody><tr><td><a href="https://picasaweb.google.com/lh/photo/We8iseVbOoekCrIZ_jdNv-fYVkiwW7Qp_c9ujmbNUkg?feat=embedwebsite"><img height="374" src="https://lh4.googleusercontent.com/-JB9bZpTyKDg/UWA_BY4S5DI/AAAAAAAAH0w/5bDqV-Spq-U/s800/excess%2520reserves%25204%25202013.PNG" width="619" /></a></td></tr><tr><td style="font-family: arial,sans-serif; font-size: 11px; text-align: right;">From <a href="https://picasaweb.google.com/116374550084895587184/TheBlogOfHORANCapitalAdvisors02?authuser=0&amp;feat=embedwebsite">The Blog of HORAN Capital Advisors</a></td></tr></tbody></table></center><br /><ul><li>Typically, the excess reserves held by banks would be deployed into the economy by growth in Commercial &amp; Industrial loans. This loan growth has occurred...:</li></ul><center><table style="width: auto;"><tbody><tr><td><ul><li><a href="https://picasaweb.google.com/lh/photo/KXiBni-mjEqqCadZhzQdI-fYVkiwW7Qp_c9ujmbNUkg?feat=embedwebsite"><img height="373" src="https://lh4.googleusercontent.com/-vhQOVuw8SiA/UWA_BSouFcI/AAAAAAAAH00/HKSEA9j56BM/s800/c%2526i%2520Loans%25204%25202013.PNG" width="619" /></a></li></ul></td></tr><tr><td style="font-family: arial,sans-serif; font-size: 11px; text-align: right;">From <a href="https://picasaweb.google.com/116374550084895587184/TheBlogOfHORANCapitalAdvisors02?authuser=0&amp;feat=embedwebsite">The Blog of HORAN Capital Advisors</a></td></tr></tbody></table></center><ul><li>...But not at a pace that has increased the velocity of money; hence, this money supply growth has not resulted in inflationary pressure:</li></ul><center><table style="width: auto;"><tbody><tr><td><a href="https://picasaweb.google.com/lh/photo/7RXqreZisuOAk6qqUODwvOfYVkiwW7Qp_c9ujmbNUkg?feat=embedwebsite"><img height="372" src="https://lh6.googleusercontent.com/-ziXyB0T2avM/UWA_B-rSbhI/AAAAAAAAH04/rtA3Ka34inM/s800/velocity%25204%25202013.PNG" width="618" /></a></td></tr><tr><td style="font-family: arial,sans-serif; font-size: 11px; text-align: right;">From <a href="https://picasaweb.google.com/116374550084895587184/TheBlogOfHORANCapitalAdvisors02?authuser=0&amp;feat=embedwebsite">The Blog of HORAN Capital Advisors</a></td></tr></tbody></table></center><br /><div style="text-align: justify;">Our firm has&nbsp; <a href="http://disciplinedinvesting.blogspot.com/search?q=inflation" target="_blank">published a number of posts on inflation</a> and its inpact on investment returns over the years. As long ago as January 2009, we wrote a post, <a href="http://disciplinedinvesting.blogspot.com/2009/01/money-supply-causing-concern-with.html" target="_blank">Money Supply Causing Concern With Future Inflation</a>, that looked at the Quantity Theory of Money and velocity's impact on inflation. So inflation was an investor concern in 2009 and has been misplaced, yet this post is going to discuss inflation concerns again in 2013. The point is this slow pace of economic growth, developed economy deleveraging and the high debt to GDP level in many countries may actually be restraining inflation pressures. However, investors should be aware of strategies that can be implemented that might provide a hedge against inflation as it relates to the return generated by one's investment portfolio.</div><div style="text-align: justify;"><br /></div><div style="text-align: justify;">Lazard Asset Management recently published two white papers on asset returns and inflation. A link to both papers is provided at the end of this post. Two important factors are cited that determine the type of investments that do well in various inflationary environments: the rate of GDP growth and the level of inflation.</div><br /><center><table style="width: auto;"><tbody><tr><td><a href="https://picasaweb.google.com/lh/photo/NuBOKFism5rfbI9xQOCsJOfYVkiwW7Qp_c9ujmbNUkg?feat=embedwebsite"><img height="192" src="https://lh3.googleusercontent.com/-kBmqOFOgn1I/UWBHUKfqdgI/AAAAAAAAH1c/jUY5Q_cVnlg/s800/returns%2520econ%2520scenario.PNG" width="380" /></a></td></tr><tr><td style="font-family: arial,sans-serif; font-size: 11px; text-align: right;">From <a href="https://picasaweb.google.com/116374550084895587184/TheBlogOfHORANCapitalAdvisors02?authuser=0&amp;feat=embedwebsite">The Blog of HORAN Capital Advisors</a></td></tr></tbody></table></center><br /><div style="text-align: justify;">At the outset of the part 2 paper, Lazard notes, over the "long run" equities are a good hedge against inflation. However, this long run may be thirty years or more and if an investor is older than say 70, the thirty year time period may be irrelevant unfortunately.</div><br /><center><table style="width: auto;"><tbody><tr><td><a href="https://picasaweb.google.com/lh/photo/dr9FJR0ETqSA_UQBoes5GOfYVkiwW7Qp_c9ujmbNUkg?feat=embedwebsite"><img height="375" src="https://lh4.googleusercontent.com/-qJW7d52TH0Q/UWBHUMCT7hI/AAAAAAAAH1g/8K2GbLA8BYo/s800/bond%2520equity%2520returns%2520inflation.PNG" width="432" /></a></td></tr><tr><td style="font-family: arial,sans-serif; font-size: 11px; text-align: right;">From <a href="https://picasaweb.google.com/116374550084895587184/TheBlogOfHORANCapitalAdvisors02?authuser=0&amp;feat=embedwebsite">The Blog of HORAN Capital Advisors</a></td></tr></tbody></table></center><br />So as the above chart shows, equities do provide a good hedge against inflation versus bonds. At high rates of inflation though, real equity returns historically are negative. Lazard notes critical determinants of the best types of investments to hedge inflation are, <br /><div style="text-align: justify;"><blockquote class="tr_bq"><i>"Both the inflation rate and the type of inflation regime are critical to evaluate the degree of inflation protection provided by any asset class. Therefore, it is important to understand the drivers of a given inflationary period. In a regime where inflation is being driven by companies passing on costs to consumers via price increases, alongside a booming economy with strong growth rates, stocks (and also commodities) can offer good inflation protection. This may be explained in part because stocks and commodities both act as real asset investments as they typically benefit from a strong economy and because company profits may rise with inflation as illustrated in Exhibit 2.</i><br /><i><br /></i> <i>Nonetheless, an equity-driven inflation hedge is quite limited if inflation is a result of erroneous monetary policy, commodity shortages, protectionism, extreme volatility in economic data, or inflated wage contracts, alongside a phase of weak growth and deeply embedded structural problems. Stocks tend to generate weak growth under these circumstances, particularly in times of low growth and high inflation."</i></blockquote></div><br />Finally, the white paper demonstrates that tactically allocating one's investments, even at the equity sector level (and individual stock level) can enhance a portfolio's real return. Exhibt 5 of the Part 2 paper provides industry and style factors investors can consider based on inflation views. Lazard concludes,<br /><div style="text-align: justify;"><blockquote class="tr_bq"><i>"It turns out that portfolios with high inflation betas generally offer better inflation protection compared to portfolios that have been constructed based on the relationship of each stock to a conventional capitalization-weighted index. Not surprisingly, many of the stocks with high inflation betas are concentrated largely in the gold, commodities, raw materials, and technology sectors, but the manufacturers of essential consumer goods, pharmaceutical stocks, and selected industrial stocks also come under consideration for such portfolios... An additional observation regarding inflation betas is that a long-short portfolio (long high inflation beta and short low inflation beta) improves the hedging capability of a portfolio (see Bernard 1982).</i><br /><i><br /></i> <i>...inflation protection is usually only one of several investment goals. It is likely that a focus on inflation protection may introduce opportunity costs or generate additional risks, as it entails heavy concentration in specific sectors or factors and may forgo diversification benefits. Therefore, it is conceivable that in a singular pursuit of inflation protection, an investor may neglect other investment goals, as well as the earnings potential of other stocks, and be subject to valuation implications (stocks that offer inflation protection may become expensive in specific phases when everyone wants to buy inflation protection). In our view, inflation protection is part of a broader goal in a portfolio and, thus, an important task of strategic asset allocation in connection with a comprehensive assessment of investment objectives.</i><br /><i><br /></i> <i>Based on our analysis, a straightforward answer cannot be given for assets that will protect against inflation in every economic environment and in every investment horizon. The recent revival of the inflationary debate has sparked interest in seeking optimal inflation hedges. However, searching for assets that protect against inflation proves to be a complex enterprise, as a myriad of factors affect the inflation-protecting capabilities of financial assets."</i></blockquote></div><br />Source:<br /><br /><a href="http://www.lazardnet.com/lam/global/pdfs/Literature/EquityInvestmentsAsAHedgeAgainst_LazardResearch.pdf">Equity Investments as a Hedge against Inflation, Part 1</a><br />Lazard Asset Management<br />By: Werner Krämer, Managing Director, Economic Analyst<br />http://www.lazardnet.com/lam/global/pdfs/Literature/EquityInvestmentsAsAHedgeAgainst_LazardResearch.pdf<br /><br /><a href="http://www.lazardnet.com/lam/global/pdfs/Literature/Part2-EquityInvestmentsAsAHedgeAgainst_LazardResearch.pdf">Equity Investments as a Hedge against Inflation, Part 2</a><br />Lazard Asset Management<br />By: Werner Krämer, Managing Director, Economic Analyst<br />http://www.lazardnet.com/lam/global/pdfs/Literature/Part2-EquityInvestmentsAsAHedgeAgainst_LazardResearch.pdf<div class="feedflare"> <a href="http://feeds.feedburner.com/~ff/blogspot/KfQp?a=rOtreiqHMgs:PXXe6UZl12M:yIl2AUoC8zA"><img src="http://feeds.feedburner.com/~ff/blogspot/KfQp?d=yIl2AUoC8zA" border="0"></img></a> </div><img src="http://feeds.feedburner.com/~r/blogspot/KfQp/~4/rOtreiqHMgs" height="1" width="1"/>David Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.com0http://disciplinedinvesting.blogspot.com/2013/04/inflation-and-its-influence-on.htmltag:blogger.com,1999:blog-36722043.post-3472048095547010872013-04-04T21:28:00.002-04:002013-04-04T21:28:27.751-04:00<div style="text-align: justify;">At HORAN Capital Advisors, we do believe the market ultimately trades on fundamentals. One difficult part with today's market is the Fed's seemly unlimited intervention with its ongoing Quantitative Easing (QE) programs. This QE activity is anything but a fundamental factor. Global central banks have also jumped on the QE bandwagon with <a href="http://www.forbes.com/sites/robertlenzner/2013/04/04/the-central-banks-are-stuck-with-quantitative-easing/?ss=strategies-solutions" target="_blank">Japan being the latest to announce their QE program</a>. For investors then, it is advantageous to look at short term technical factors in order to provide additional insight into the market's potential future direction. A couple of technical measures are raising warning flags about a potential near term pull back.</div><ul><li>Have we seen the end of the <a href="http://elliottwavetrendsandcharts.com/2013/03/31/e-ts-weekend-video-42/" target="_blank">5th wave pattern in terms of the Elliott Wave</a> parlance? </li></ul><center><table style="width: auto;"><tbody><tr><td><a href="https://picasaweb.google.com/lh/photo/SIN87_JaGaaLyW718C3dNOfYVkiwW7Qp_c9ujmbNUkg?feat=embedwebsite"><img height="319" src="https://lh6.googleusercontent.com/-d6mSA7hI4r4/UV4jSkWJmjI/AAAAAAAAHz8/jSQ7rh-DKuY/s800/5th%2520wave%2520pattern%25204%25202013.PNG" width="522" /></a></td></tr><tr><td style="font-family: arial,sans-serif; font-size: 11px; text-align: right;">From <a href="https://picasaweb.google.com/116374550084895587184/TheBlogOfHORANCapitalAdvisors02?authuser=0&amp;feat=embedwebsite">The Blog of HORAN Capital Advisors</a></td></tr></tbody></table></center><div style="text-align: center;"><i>Source: <a href="http://www.kirkreport.com/" target="_blank">The Kirk Report</a></i></div><ul><li>The defensive sectors, consumer staples and healthcare, have been outperforming the non-defensive sectors, materials, technology and industrials.</li></ul><center><table style="width: auto;"><tbody><tr><td><a href="https://picasaweb.google.com/lh/photo/SJ1LtPD1nZCFGMu7vrj-EufYVkiwW7Qp_c9ujmbNUkg?feat=embedwebsite"><img height="461" src="https://lh3.googleusercontent.com/-miJuSVuLypA/UVzp279zUxI/AAAAAAAAHyU/msYmzzk7GYM/s800/sector%2520perf%25204%25203%25202013.PNG" width="617" /></a></td></tr><tr><td style="font-family: arial,sans-serif; font-size: 11px; text-align: right;">From <a href="https://picasaweb.google.com/116374550084895587184/TheBlogOfHORANCapitalAdvisors02?authuser=0&amp;feat=embedwebsite">The Blog of HORAN Capital Advisors</a></td></tr></tbody></table></center><ul><li>The small cap stock <a href="http://finance.yahoo.com/q/bc?s=%5ERUT+Basic+Chart" target="_blank">Russell 2000 Index</a> has been underperforming the large cap <a href="http://finance.yahoo.com/q/bc?s=%5EGSPC+Basic+Chart" target="_blank">S&amp;P 500 Index</a> since mid March. This can also be a sign of a risk off mood of investors.</li></ul><center><table style="width: auto;"><tbody><tr><td><a href="https://picasaweb.google.com/lh/photo/mmgSIvIuaUK-pXgboskmBufYVkiwW7Qp_c9ujmbNUkg?feat=embedwebsite"><img height="312" src="https://lh4.googleusercontent.com/-14MsVwbOqSQ/UV3TVTJl7_I/AAAAAAAAHy8/N7HKe3Pll9E/s800/small%2520versus%2520large%25204%25202013.PNG" width="382" /></a></td></tr><tr><td style="font-family: arial,sans-serif; font-size: 11px; text-align: right;">From <a href="https://picasaweb.google.com/116374550084895587184/TheBlogOfHORANCapitalAdvisors02?authuser=0&amp;feat=embedwebsite">The Blog of HORAN Capital Advisors</a></td></tr></tbody></table></center><br /><ul><li>The transport index has been underperforming the broader market since mid march and this could be signaling economic weakness ahead. Additionally, there have been some transport company warnings recently, FedEx (<a href="http://finance.yahoo.com/q/bc?s=FDX+Basic+Chart" target="_blank">FDX</a>) being one. </li></ul><center><table style="width: auto;"><tbody><tr><td><a href="https://picasaweb.google.com/lh/photo/S37jkmrSjdeHu3mruwLrG-fYVkiwW7Qp_c9ujmbNUkg?feat=embedwebsite"><img height="312" src="https://lh3.googleusercontent.com/-zT_WJPsZVtU/UV3YVVX8Q3I/AAAAAAAAHzU/HP8y-oVia14/s800/transports.PNG" width="386" /></a></td></tr><tr><td style="font-family: arial,sans-serif; font-size: 11px; text-align: right;">From <a href="https://picasaweb.google.com/116374550084895587184/TheBlogOfHORANCapitalAdvisors02?authuser=0&amp;feat=embedwebsite">The Blog of HORAN Capital Advisors</a></td></tr></tbody></table></center><br /><div style="text-align: justify;">The U.S. market has had a strong advance so far this year and the consensus seems to believe the market is due for a correction. One factor that is almost a certainty in investing is the market does a good job at proving the consensus wrong. As Charles Kirk of the <a href="http://www.kirkreport.com/" target="_blank">The Kirk Report</a> noted in his after market strategy report this evening, he is focusing on the technical aspects of the market set up,</div><div style="text-align: justify;"><blockquote class="tr_bq"><i>"While central bankers around the world did their best to restore confidence, concerns over both the economy and upcoming earnings kept the upside limited and big bets on hold at least until the jobs report tomorrow morning. From a technical perspective, we did not see much progress today another than to not be very impressed by the bounce given the significant weakness we have seen this week. Today’s upside once again came on below average volume with mixed leadership and was mostly driven by programs in a thin tape attempting to defend and keep the market from moving lower.</i><br /><i><br /></i> <i>Tomorrow morning will be a busy one due to the jobs report and other econ data. The bears will need to step up their game tomorrow and put some pressure on or the bulls will do what they do best and attempt another reversal back to potentially test if not break through the all time intraday highs at S&amp;P 1576."</i></blockquote></div><div class="feedflare"> <a href="http://feeds.feedburner.com/~ff/blogspot/KfQp?a=q0bzsxGWJhw:aurHXk7ocfI:yIl2AUoC8zA"><img src="http://feeds.feedburner.com/~ff/blogspot/KfQp?d=yIl2AUoC8zA" border="0"></img></a> </div><img src="http://feeds.feedburner.com/~r/blogspot/KfQp/~4/q0bzsxGWJhw" height="1" width="1"/>David Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.com0http://disciplinedinvesting.blogspot.com/2013/04/defensive-equity-sectors-outperforming.htmltag:blogger.com,1999:blog-36722043.post-59424877246195507252013-04-03T21:29:00.001-04:002013-04-03T23:21:28.154-04:00<div style="text-align: justify;">Standard and Poor's reports preliminary buyback activity for the fourth quarter of 2012 fell 4.4%. On a year over year basis, buybacks are up 13.2%; however, for the year 2012 buybacks declined 1.5%. On the other hand, dividends in Q4 increased nearly 15% compared to the third quarter and were higher by 21% on a year over year basis. Howard Silverblatt, Senior Index Analyst for S&amp;P Dow Jones Indices noted in the press release,</div><blockquote class="tr_bq"><div style="text-align: justify;">"For 2013, S&amp;P Dow Jones Indices anticipates that companies will continue to protect their earnings by buying back the number of shares necessary to prevent earnings dilution – something not difficult to do given record levels of cash on hand."</div></blockquote><center><table style="width: auto;"><tbody><tr><td><a href="https://picasaweb.google.com/lh/photo/dGUqqL0HO910nnDF6v0JKOfYVkiwW7Qp_c9ujmbNUkg?feat=embedwebsite"><img height="440" src="https://lh3.googleusercontent.com/-Z9KRthMRD4E/UVx3jgJQZfI/AAAAAAAAHxI/Ks25OmVfljE/s800/buybacks%252012%25202012.PNG" width="462" /></a></td></tr><tr><td style="font-family: arial,sans-serif; font-size: 11px; text-align: right;">From <a href="https://picasaweb.google.com/116374550084895587184/TheBlogOfHORANCapitalAdvisors02?authuser=0&amp;feat=embedwebsite">The Blog of HORAN Capital Advisors</a></td></tr></tbody></table></center><div style="text-align: center;"><i>Source: <a href="https://my.spindices.com/documents/index-news-and-announcements/20130327-sp-500-buy-backs.pdf">S&amp;P Dow Jones Indices</a></i></div><div class="feedflare"> <a href="http://feeds.feedburner.com/~ff/blogspot/KfQp?a=iSSuK-6jkBo:duZP7JkM7zM:yIl2AUoC8zA"><img src="http://feeds.feedburner.com/~ff/blogspot/KfQp?d=yIl2AUoC8zA" border="0"></img></a> </div><img src="http://feeds.feedburner.com/~r/blogspot/KfQp/~4/iSSuK-6jkBo" height="1" width="1"/>David Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.com0http://disciplinedinvesting.blogspot.com/2013/04/buybacks-and-dividend-mixed-picture-in.htmltag:blogger.com,1999:blog-36722043.post-73134043247666712662013-04-01T22:57:00.002-04:002013-04-01T23:01:59.716-04:00<div style="text-align: justify;">I just returned from a well rested week's vacation. It is always good to step away from the market from time to time in order to refocus one's perspective. A tough part of taking the week off is giving up the view of the sunset I had each day. The fishing off the dock was good, but shrimp bait was in tight supply as the water temperature was on the cold side. Some of my younger relatives were not too fond of baiting the hooks with live shrimp and they found hot dogs, chicken and bread worked just as well at catching the fish.</div><br /><center><table style="width: auto;"><tbody><tr><td><a href="https://picasaweb.google.com/lh/photo/k9ow119201GyBb1KOZvnzufYVkiwW7Qp_c9ujmbNUkg?feat=embedwebsite"><img height="406" src="https://lh5.googleusercontent.com/-IdLmSqw9QOw/UVo-KPzipwI/AAAAAAAAHwA/csYK-0yOnDU/s800/sunset.JPG" width="650" /></a></td></tr><tr><td style="font-family: arial,sans-serif; font-size: 11px; text-align: right;">From <a href="https://picasaweb.google.com/116374550084895587184/TheBlogOfHORANCapitalAdvisors02?authuser=0&amp;feat=embedwebsite">The Blog of HORAN Capital Advisors</a></td></tr></tbody></table></center><br /><div style="text-align: justify;">The market results for the first Monday of the quarter continued the typical pattern of generating negative results for investors. As the below chart shows, the average return of the Dow has been negative for Monday's so far in 2013. Could this be a precursor of return expectations for the second quarter?</div><br /><center><table style="width: auto;"><tbody><tr><td><a href="https://picasaweb.google.com/lh/photo/3ELEBicvUkqtkACyjN1hWOfYVkiwW7Qp_c9ujmbNUkg?feat=embedwebsite"><img height="331" src="https://lh4.googleusercontent.com/-6WmKIQfARrM/UVo-JxTuwbI/AAAAAAAAHv8/BBeOySaAVp0/s800/mondays.PNG" width="478" /></a></td></tr><tr><td style="font-family: arial,sans-serif; font-size: 11px; text-align: right;">From <a href="https://picasaweb.google.com/116374550084895587184/TheBlogOfHORANCapitalAdvisors02?authuser=0&amp;feat=embedwebsite">The Blog of HORAN Capital Advisors</a></td></tr></tbody></table></center><div style="text-align: center;"><span style="font-size: x-small;"><i>Source: <a href="http://www.kirkreport.com/">The Kirk Report</a> and <a href="http://www.bespokeinvest.com/">Bespoke Investment Group</a></i></span></div><div style="text-align: justify;"><br /></div><div style="text-align: justify;">Conversely, today The Wall Street Journal reported on a comment from Rob Leiphart of Birinyi Associates that noted the total return for years in which the <a href="http://finance.yahoo.com/q?s=^GSPC">S&amp;P 500 Index</a> had first quarter returns greater than 10%, the balance of the year on average generated positive returns.The <a href="http://finance.yahoo.com/q?s=^GSPC">S&amp;P 500 Index</a> was up 10% in the first quarter and the <a href="http://finance.yahoo.com/q?s=^DJI">Dow</a> was higher by 11.25%.</div><div style="text-align: justify;"><blockquote class="tr_bq"><i>"Birinyi Associates points out there have been 12 other years dating back to 1929 in which the S&amp;P 500 rose by at least 10% in the first quarter. In 11 of the those 12 instances, the S&amp;P 500 finished those years in positive territory, with 1930 being the lone outlier. However, much of those full-year gains were front-loaded in the first three months of the year. After accounting for the gain in the first quarter, the market is still up, but only 1.39% on average, from the end of the first quarter through the end of the year,” Leiphart said in an email, while noting the index was positive from the second quarter through the fourth quarter of those years 10 out of 12 times. The S&amp;P 500 has averaged a 16% full-year gain in those 12 instances."</i></blockquote></div><center><table style="width: auto;"><tbody><tr><td><a href="https://picasaweb.google.com/lh/photo/wG7lxAoWdlnzjPyuD8PZmefYVkiwW7Qp_c9ujmbNUkg?feat=embedwebsite"><img height="312" src="https://lh3.googleusercontent.com/-pCP3q30E154/UVpFPXPPBMI/AAAAAAAAHwk/xs5iCANnuOk/s800/10%2525%2520plus%2520sp.PNG" width="489" /></a></td></tr><tr><td style="font-family: arial,sans-serif; font-size: 11px; text-align: right;">From <a href="https://picasaweb.google.com/116374550084895587184/TheBlogOfHORANCapitalAdvisors02?authuser=0&amp;feat=embedwebsite">The Blog of HORAN Capital Advisors</a></td></tr></tbody></table></center><div style="text-align: center;"><span style="font-size: x-small;"><i>Source: <a href="http://blogs.wsj.com/marketbeat/2013/04/01/what-happens-after-strong-first-quarter-historically-not-much/">The Wall Street Journal</a></i></span></div><br /><div style="text-align: justify;">One important factor in the market's future direction will likely hinge on upcoming first quarter earnings reports.</div><div class="feedflare"> <a href="http://feeds.feedburner.com/~ff/blogspot/KfQp?a=QpnL9cTeflc:7xzEnzpj8V0:yIl2AUoC8zA"><img src="http://feeds.feedburner.com/~ff/blogspot/KfQp?d=yIl2AUoC8zA" border="0"></img></a> </div><img src="http://feeds.feedburner.com/~r/blogspot/KfQp/~4/QpnL9cTeflc" height="1" width="1"/>David Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.com0http://disciplinedinvesting.blogspot.com/2013/04/monday-market-blues.html