George Morgan's Blog, page 2

Mom And Pop Rush In

This morning, the Wall Street Journal reported that during the first quarter of 2014 discount brokers reported a large increase in the trading activity of their clients. TD Ameritrade and Charles Schwab Corp., the two largest discount brokers, reported that their average daily volume increased 20% plus to roughly 700,000 shares a day. While a 20% plus increase in activity may sound like a big deal, when you put it in the context of the overall market that’s not even a sneeze. Normal daily vol...

Reform Needed

Recently, I was approached by a lady I know, who shall remain anonymous. She asked me if I would mind looking over here 401(k) and giving her some direction with the investment selection. She works for any large institution and I am guessing that she is a little bit past middle age. I looked at her statement, which had a modest sum of money in 12 different mutual funds. She asked me if I recognize any of them; I did not. Her employer, like many others relies on a very large mutual fund compan...

Hedging Their Bets

During the first quarter of 2014, investors continued to pour money into hedge funds resulting in an industry wide record of assets under management. Assets under management for the industry now stands at $2.7 trillion, which is almost double the amount the industry experienced in 2008.  I think this shows the power of persuasion that the industry has over high net worth individuals.  In 2013, the average hedge fund returned 9% while the S&P 500 gained 32 %, dividends included....

Scary Stuff

The macho guys on Wall Street can’t stand plan vanilla and are always seeking new ideas to push off on the investing public. It has been reported that Blackrock Inc., T. Rowe Price and Fidelity Investments have been taking stakes in high profile startup companies, many of them in Silicon Valley. These are the kind of investments that either pay off big or go broke. Last year these three were involved in 16 private funding deals, up from nine such deals in 2012. So far this year, these three h...

Bubble vs. Pricey

We’re starting to see stories that current Bull Market is long in the tooth and about to burst. It is important to make a distinction between being pricey and being in a bubble. When stocks are pricey it means that future returns are generally lower. A bubble means that stocks no longer have any connection to the real asset prices and the bursting of the bubble can result in price declines of over 50%. Is the stock market currently in bubble? Probably not? While the S&P 500 did gain 32% l...

Until Proven Guilty

Virtu Financial Inc. describes themselves as an electronic market making firm. They are in the middle of an Initial Public Offering, but announced yesterday that they are suspending their efforts indefinitely due to the controversy surrounding Michael Lewis “Flash Boys.” The Atty. General of the State of New York has subpoenaed a number of flash trading firms for information on their trading activities and he describes the strategies of some of these firms as “Insider Trading 2.0. I think it...

Important Economic News

The Wall Street Journal reported this morning that lending is on the rise at the sixth largest money center banks in the country. Earnings reports show an 8.3% increase in commercial lending for the first quarter over the same period a year earlier. Lending by the big banks has been a drag on economic growth and an indicator of pessimism by the banks and the corporate community. The increasing level of lending could be a change in attitude by both the banks and corporations and it is importan...

Bogle On Mutual Fund Performance

Jack Bogle has written a journal article documenting his research on the impact that fees have on mutual funds performances. According to the article, fees and all of the costs associated with active trading reduce the investment returns of the average mutual fund by 2.66 basis points.  Comparing this with a low-cost index fund, Mr. Bogle estimates that an investor using a passive investment approach would end up with 20% more income at retirement age. He also has some interesting data o...

Better Intellectually Than Empirically

I’ve had conversations with dozens of people who ask me about a model their broker suggested to them that puts together mutual funds from different industrial sectors in the name of diversification. The implication is that by diversifying into different sectors you reduce risk. Intellectually it makes sense that when one sector suffers, others may fair better. It also is an opportunity for the broker to differentiate himself from his competitors and earn a few extra fees. From an intellectual...

Seeing More Light

I have run across to data points that are beginning to make sense of the notion that a selloff in tech stocks could lead to a 250 point decline in the S&P 500. The Wall Street Journal reported today that the class A shares of Google have declined 12% since the 1st of March and that that movement accounts for 8.9% of the movement of the NASDAQ index. This make sense when you remember that the NASDAQ and the S&P 500 are cap weighted indexes and three of the biggest stocks in the NASDAQ...