That Was The Week That Was-2nd Week November

 

 A lovely article in Barrons.com 11/6 in the column, ‘Read This, Spike That’, by John Kimelman. who reported on a piece in the Street Authority on how holding lots of securities can lower one’s risk, that diversity also reduces one’s ability to ‘beat’ a benchmark. Patrick O’Shaughnessy, a principal at O’Shaughnessy Asset Management wrote in a Yahoo post that, ‘To take advantage of value investing, you need a smaller portfolio than you may think.’ He then did a test which found that the best returns came from a five stock portfolio, the best Sharpe ratio from a 15-stock version. He concluded that both returns and Sharpe ratios degraded after 15 stocks.’ This is similar to Warren Buffett’s philosophy of buying the best company stock you can find  but your second purchase will reduce your overall return since it is not as good as your first.  As will your third and fourth, etcetera. The problem is magnified when buying funds and ETFs and the average investor confuses asset allocation with diversification and increased returns. Owning too many funds and ETFs simply reduces risk and rarely increases returns over time.

 

The Sharpe Ratio is a ratio that describes how much excess return you are receiving for the extra volatility that you accept for holding a riskier asset. In other words, is it worthwhile to accept the higher risk/volatility. A ratio of 1 or better is good, 2 is better and 3 is considered the best.

 

  ‘ My insurance agent told me I badly needed a (blank). ‘ Was it a Trust? A Will? A joint-life insurance policy? Or, was it an estate plan, and do you know what an estate plan is, does and who should have one done? And, who exactly does estate planning? Get questions in to me for my annual client meeting about estate planning, wills and trusts. You can e-mail or call me. Larry E. Powe, attorney with Keller Thoma, PC, will be my special speaker explaining all.

Batting better than Ted Williams- The Inverted Yield Curve preceded a recession five out of the last five times. Source Ridgeworth Investments in their brochure, Rates, Performance and Markets. What exactly is an Inverted Yield curve? That’s when the short term Treasury yield is higher than the long-term Treasury Bond yield. Investors noticing a higher three month T-bill versus a lower 10-year may well prepare themselves for bad news coming from the equity markets.

  Next Monday China will launch ‘Shanghai-Hong Kong Stock Connect’ program. Retail investors from around the world will be able to invest in mainland Chinese equities. Goldman Sachs said in a recent announcement that the opening of the Shanghai to foreign investors was an opportunity ‘simply too big to ignore.’ It will create the second largest equity market by market cap next to New York. Eventually it could add 855 companies with a market cap of $1 billion. Goldman Sachs, MarketWatch 11/10/2014

A University of Michigan study on money, material goods, life experiences and happiness. Life experiences have a longer lingering effect while material purchases fade. Still those with $500k income are ‘very happy’.

Cody Willard wrote: 4 Near Term Catalysts For The Next Stock Market Crash. MarketWatch.com 11/11/2014.

• Oil drops to $50
• A spike in gold to $2,000
• Food prices and inflation take-off
• Currency wars. Nations like cheap money unlike those of us who work for a living. Cheap money allows goods and services to be more attractive to other people.

Cody doesn’t think a crash is around the corner but warns to be objective and vigilant.

Reason #12 Why Pistons Continue to Lose… they got the wrong guys suiting up….Drummond should be starting and not Drummund…Oy!  a tip to USA Today.

 

Room to run- A strong bull trend, according to Michael Ashbaugh, from the Technical Indicator. The technical backdrop remains bullish despite a massive three-week run.

CNN reported ‘Millennials Arent Saving a Dime?!’ According to Moody Analytics people under 35 are not saving money. They’re the only group with a negative saving rate, they report. (Forget that jobs are scarce and Boomers are hanging around longer due to the recession.) According to Dr. John Edmunds a Babson College finance professor, ‘Millennials are waiting for those above them to either retire or die.’ The Boomers are not going without a fight.  In my opinion they’ve reported this exact same thing on every generation including the Boomers. Nothing being said or reported about Millennials hasn’t already been said about every previous generation since the Civil War.  

The Trauma of 2008, most people don’t realize how severe it was that’s keeping our markets still moving forward.

Ron Insana wrote for CNBC.com that gold could drop to as low as $800 an ounce. In Barrons.com John Kimelman wrote that the case for a strong dollar, while good for consumers, is bad for our domestic companies that try to sell their goods globally. Makes the products expensive in relation to others and less competitive. A market crash doesn’t happen simply because stock returns have been so high. Investors are not doomed to poor returns going forward because of great previous returns. Finally, a bad winter won’t necessarily be a boon for higher energy prices. There is an over-supply. Oil trades in dollars and as long as we have a strong and strengthening dollar, along with abundant supply, the energy trade will be on the back burner for a while longer. Barrons.com 11/12/2014

From the Department: If it sounds too good to be true-Investors may have lost $1 billion!  That’s the story from Bloomberg.com 11/13/2014. An Internet trading company in currencies promised investors a return of their principal but also showed a history of returning 1% per day gains. It was a perfect investment- returns that were out of sight but with a principal guarantee. No one can lose. A 1% daily return even without compounding that’s 250%, or more than 25 times the average S&P 500 Index return for the past 50 years! An English doctor and wife reportedly invested with the company and watched the company’s internet site as their earnings piled up. Eventually they asked for ‘some’ of their money and were told that because of foreign tax that it would be delayed. Another request and another stall until finally the company disappeared. Regulators think that all investors have lost a billion dollars in this forex fraud. Customers in 11 countries have seen their money disappear. The article did not mention if anyone was arrested, or even if perpetrators were found and questioned.

Market Closed Up Thursday – Oil Down- Closed at $74 Commodities Beaten Up. Blame the strong dollar and the fact that more oil has been drilled in the U.S. since the 1980s. (source MarketWatch.com). CNBC 22 Trades in 79 Seconds expects copper to be the next commodity to fall in price. ‘It’s held up fairly well,’ said Guy Adami. “I wouldn’t surprise me it’s next and falls below $3.’

You Making Your List? Traders should be diligently searching for quality beaten up stocks to add to their buy list. It’s what you do when certain sectors are crushed. Most of us are investors buying quality and holding for the long-term.

Questions? Call Paul @ 586 295 0430 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money.

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