George Morgan's Blog, page 10

Words Of Wisdom

In this week’s Intelligent Investor, Mr. Zweig turns to the investing pioneer Dean LeBaron for some insight about where the market is headed. In 1974, Mr. LeBaron ran the fund company Batterymarch which was one of the first to offer an index mutual fund. While most investors focus their energy on making the most money possible, Mr. LeBaron believes that in todays environment investors would be better off focusing on not losing money, because he feels we a entering a period of a transition. In...

I Trade Because I Can

An excellent example of the “I am trading like crazy because I can” mentality are today’s hedge funds.  If it is estimated that Americans currently hold approximately two trillion dollars in hedge funds and the typical hedge fund has an annual turnover rate in excess of 300%. There are a little over 4,600 hedge funds on the market today. While some of them have reasonable performance, as an industry they have underperformed the market. In fact, their performance rate is so low that every...

Shame On Me

This morning I was listening to a radio program on mutual funds where the commentators were presenting their list of “worst mutual funds to own.” One fund they discussed had been in the bottom 5% of all the funds in their style category for the past five years and the fund still had $1.5 billion dollars of investors’ money. The implication of this statement is that nobody should have any money invested in such a poorly performing fund. They then asked “Who is to blame?” First of all, they sai...

Hedge Funds And The Weatherman

Hedge fund managers are a little bit like weatherman. They have huge amounts of information available to them from data banks across the world. They have large, sophisticated high speed computers at their beckon call. They have staffs of technical geeks to help them perform analysis based upon extremely complex predictive models. Their goal is to look into the future and predict what will happen. This is where the similarities end. The weatherman is predicting a natural phenomenon based upon...

Market Timing

Market timing is the way that the conventional wisdom thinks that successful investing is achieved. On a macro scale, market timing it involves getting out of the market when you think the market is going to go down and then getting back in when you think it’s going to go up. Another approach is doing the same buying and selling activity for individual stocks. The problem is human beings are very poor at predicting the short-term movement of the market. The way this works for individuals is t...

Tooth Paste And Mutual Funds

Currently, there are 7,581 mutual funds available to the public. Why so many? I read a WSJ story that sheds light on the issue. There are 216 different brands of toothpaste on the market. Some offer a tooth whitener. Some fight Gingivitis and others control a variety of gum diseases.  The author interviewed 73 dentists in order to determine how useful the many different brands were. The dentists told him that as we age, our teeth naturally lose their whiteness. On the issue of gum diseas...

Jason Is Back

After two weeks off, Jason Zweig is finally back at the Wall Street Journal and the world is back to normal. Jason’s topic this week is financial bubbles. With the Fed pulling back on its bond buying program and professing their determination to keep interest rates near zero, you’re probably going to be seeing more and more comments about bubbles in the financial media.  Jason’s approach to bubbles is probably a bit more philosophical than practical. He agrees with Mr. Bernanke and Mr. G...

Further Evidence

Continuing our theme that mere human beings can’t outsmart the market, I have some performance data on the hedge fund industry for 2013. Supposedly, hedge funds are the best of the best; they are mutual funds on steroids. They are only available to elite investors with seven figure asset bases. They employ the brightest and best educated investment professionals, they control massive computer resources and are guided by fewer rules than any other group in the financial world. They also have t...

Boats, Stocks And Tides

If stock prices do not reflect the fundamentals of the company underlying the stock, but rather are established in a random fashion by the emotions of investors, how can I decided which stocks to buy or which stocks to sell? A reader’s digest response to that is that 90% of the movement of a stock can be attributed to the movement of the broad market. Think of it this way, when the tide goes out, all boats go down, when the tide comes in all, boats go up. So you if you have a portfolio of sto...

The Value Puzzle

There are those investors and Wall Street types who believe that stock prices are determined by the fundamentals of the underlying company. They devote their time and effort to determining what the future earnings of the company might be, those future earnings are then discounted back to the present to determine what they feel is a proper per share price. There is another, less visible group of behavioral investors, who believe that share prices are fairly random and determined primarily by t...