George Morgan's Blog, page 25

NASDAQ Two

In terms of size, the NASDAQ Exchange is second only to the New York Stock Exchange. The NASDAQ differs from the NYSE in that it is entirely automated and there are no humans operating on a trading floor trading. Trading is facilitated through the use of market makers who are broker dealers that are willing to make a market in specific stocks. These broker dealers are scattered across the country and represent all the major national brokerage firms. When it came into being, the NASDAQ listed...

The Other Index

Every 401(k) owner needs to understand the unique characteristics of the three major exchanges; the Dow Jones Industrial Average, the S&P 500 and the NASDAQ. The NASDAQ is the most unique index of the group. It began life in 1971 and the name stands for the National Association of Securities Dealers Automated Quotes. In the early 1970’s all of the stock transactions at the individual level were made by phone. There was some computerized trading on the floor of the New York and American ex...

Update On Inflation

This morning, the Commerce Department announced that for the month of June, the consumer-price index rose at a seasonally adjusted 0.5% rate. On an annualized basis our current inflation rate is 1.8% which has remained fairly steady for the last three quarters. Gasoline prices, however, rose sharply at a 6.3% annualized rate. I need to point out that gasoline prices are significantly more volatile than the base and tend to experience an upturn during the summer months. While the overall rate...

Much Ado About Nothing

During the last several days, I have seen commercials for financial products that begin with the tagline “What are you doing to protect your investments against the upcoming surge in inflation?” If you are less than 35, you are not old enough to never have experienced any meaningful inflation. Our current rate stands at 1.4% and the anticipation is that when the Federal Reserve ends its bond buying program called QE3, the inflation rate will accelerate and returned to closer to normal levels....

They Used To Be Mutual Funds

The mutual fund industry was born in 1924 when a Boston stockbroker started the Massachusetts Investment Trust. MIT truly was a mutual fund because it was a nonprofit entity run by a board of directors that answered to the fund’s investors. Fund managers were paid a small percentage of the assets under management, not a fee based on performance. Since the trust was owned by its investors any money over and above the small for cost of running the business was returned to them. Today’s mutual f...

More On Moving Together

Pick up any university textbook on investing and it will tell you that approximately 90% of all of the movement in an individual stock can be attributed to changes in the broader market. Equity research companies such as Standard & Poor’s and Value Line provide their subscribers with a data point called beta. Beta is a correlation coefficient between the stock being reported on and the market, which in most cases is the S&P 500. Take a look at dozen or so stocks from the S&P 500 a...

Homogeneous Indexes

As a follow-up to the post I made recently about finance professionals inventing new indexes to try to beat the market, I would like to provide you with graphic proof that the indexes do indeed move together. If you go to the Wall Street Journal online website you will find a box in the upper right hand corner labeled “Markets.” Then click on the tab labeled U.S. and you will find data on six major American indexes. If you do this during market hours, the data you find will be live and in rea...

What Goes Down Must Come Back Up

On the financial news network this morning, there was an advertisement in which an actor, posing as an investor, was complaining that he was emotionally drained by the up some downs and the market and wished there was a product that could help out of his misery. Of course there is a product that can help him out of his misery and the company who will provide it to him is paying for the ad. There is a solution for when you think the market’s going to continue to go down, you sell. If you think...

Making Simple Less So

Following yesterday’s WSJ article on the three index portfolio was an article on building better indexes. This shows you that the financial services industry continues on its never ending and ever futile effort to create a product to beat the market on a long term basis. Proponents of this approach claimed that the regular method of weighting stocks in an index by market value can be beaten by indexes using an equal weighting. For example, in an equally weighted S&P 500 each stock would r...

Fewer Is Better

Every once in a while, but not that often, the Wall Street Journal runs an article that is useful to the average 401(k) investor and doesn’t add to Wall Street’s coffers. There is an article in today’s edition that advocates a portfolio consisting of three low-cost mutual funds or ETS, i.e. index funds. Having said that simple is better, the article then goes on to add complexity with a discussion of asset classes and portfolio rebalancing. In fairness to the author - who could be Jason Zweig...