George Morgan's Blog, page 13

Intersting Point???

This week’s Intelligent Investor is about stock splits. Mr. Zweig is informing investors that a stock split does not make a stock more valuable. To make his point, he uses the analogy that two nickels are not more valuable than a dime. During his discussion Jason points out that there is the tendency for stocks that split to become the target of high frequency traders because lower priced stocks are more profitable in their trading formula. We know that the Dow Jones Industrial Average is a p...

Ben Graham's Stock Market

For many years, I have maintained that the stock market is an evolving organism and consequently practices that were effective years ago are less applicable in today’s market. Considered Ben Graham’s “The Intelligent Investor”, it was written in 1949 and market that Ben Graham wrote about bears little resemblance to the one we know today. Here is a partial list of elements of today’s market that didn’t exist in 1949; the S&P 500, the NASDAQ index, the NASDAQ market, Modern Portfolio Theor...

Smart Beta And The Individual Investor

To Wall Street, smart beta is not about portfolio performance, it is about generating fees for the investment company. I think the real sweet spot for beta is the individual investor who has a non-tax sheltered account and is interested in an investment approach that will produce reasonable returns with a low level of volatility. Suggesting that they put the entire portfolio in one index fund would probably cause a bit of heart burn and a smart beta approach using individual equities might be...

Wall Street Discovers Smart Beta

Wall Street seems to have discovered smart beta. Last quarter, $15 billion was added to mutual funds following a smart beta approach. Current value of the assets in several dozen of the smart beta funds is $142 billion, which compared to the total value of all US funds of $13 trillion, is not even a drop in the bucket. The expense ratios of the smart beta funds are considerably lower than conventionally actively managed funds, but still distance from the fees charged by pure index funds. The...

Red In The Morning, Sailors Take Warning

It has been a good year for the market. The S&P 500 is up about 26%, which is its best gain in 16 years. The rising tide has lifted all the boats and thus, stock picking has not been particularly effective. There are signs that the market may be a bit ahead of itself and that investors need to prepare themselves emotionally for a possible pullback. While the S&P has gained 26%, its composite companies have only seen an increase in revenues of 2% and a 5% growth in profits.  There...

Still Waiting For The Other Shoe

For the last 30 years, the general trend in interest rates has been down creating the biggest bull market in bonds ever. For months we have been waiting for the Fed to change its position on interest rates and expecting that their actions will have a detrimental impact on the stock market. Would it really? If investors moved into bonds because of the bull market does it make sense that they would not move to alternative markets during a bear market? A bear market in bonds implies that as inte...

Not Your Grandfather's Market

In his weekly column, Jason Zweig, addresses an issue that I have written about for many years, which is the ongoing evolution of the stock market. One of the most notable  changes is the dramatic reduction in trading costs. For example, in the seventies when you bought 100 shares of a stock trading at $20.00, you would have paid a commission of at least $40.00. You would also have incurred something called the spread, which is the difference between what the seller was willing to accept...

Keynes Wasn't Always Wrong

I came across a story about John Maynard Keynes that invoked memories of my early days as a stockbroker. We researched companies hoping to discover valuable information about them before the rest of the world did. The theory went that our research would uncover a little known company that we thought was about to triple it’s business and then we would buy the stock. Months later when the rest of the world discovered our secret they would buy it and stock and the price would soar. At first, I b...

Start Of The NYSE

In March 1792, twenty-four of New York's leading merchants met secretly at Corre's Hotel to discuss ways to bring order to the securities business. Two months later, on May 17, 1792, these men signed a document called the Buttonwood Agreement, named after their traditional meeting place under a buttonwood tree. The agreement stated that they would only trade securities among themselves, that they would adhere to set commissions and that they would not participate in auctions.

By 1793 there we...

Close, But No Cigar

While the Dow stands at inflation adjusted high, its cousins, the S&P 500 and the NASDAQ have a way to go. In order for the S&P500 to replicate the achievement of the Dow it needs to climb a whopping 16 percent to 2,088. Likewise the NASDAQ, which lost a majority of its value in 2001, is nowhere near an inflation adjusted high and needs to increase significantly more than the S&P. A partial explanation for this discrepancy comes from the fact that the Dow’s components consistent o...