George Morgan's Blog, page 27
June 24, 2013
What Is Going On?
For the past few days the market has been in a steadily declining mode. What’s going on? It began when the Fed announced that at some point it is going to reverse it’s QE three program. That’s not news; everybody knows that at some point it will end. Also, there are few people who think that the QE three program is effective; therefore, what’s the problem with ending it? There are a variety of forces at work here. The flash traders need activity in order to make their programs work. The...
June 22, 2013
Regulators Get Something Right
In his Saturday column, Martin Zweig reports that the U.K., Netherlands and Australia are banning commissions on mutual funds. The Dutch equivalent of our SEC has found that there is an incentive for brokers to choose funds that pay the highest commission rather than funds that are in the best interest of the client. Instead of commissions, brokers would be paid a fee for their advice. This makes so much sense I can understand why nobody has ever thought of it before. In this environment, adv...
June 21, 2013
The Big Guys And Indexing
The Wall Street Journal reports that the Montgomery County Pennsylvania pension fund became concerned about investment fees and assets performance. After a lengthy review, the county has decided to shift nearly all of it’s $470 million pension fund assets to index funds run by the Vanguard Group. In doing so it will reduce fees paid to manage the asset by approximately two thirds. Currently, they are paying about 0.43% in fees to a group of active money managers from Wall Street. Under Vangua...
June 20, 2013
The Fed Chairman, Good News-Bad News
Yesterday the Federal Reserve announced an upbeat assesment of the economy. Their projections are for the gross domestic product to grow 3 ½% in the upcoming quarters and this will be accompanied by a minimal increase in the inflation rate. That’s the good news and also the bad news. Because the economy is improving it is anticipated that the Federal Reserve will begin to unwind their bond buying program known as QE Three. The conventional wisdom is that the unwinding program will result in h...
June 19, 2013
Wall Street Marketing - Close But No Cigar
Yesterday I received an e-mail that is typical of the kind of half-truths many financial types use to sell their products. Nothing that the e-mail said was a bald face lie, but their use of the facts was misleading. The sales pitch was that historically a good portion of market returns comes from dividends. This is true, but you have to remember that the Dow includes dividends and the S&P 500 does not. So the validity of his claim will depend upon the database being used. It then goe...
June 18, 2013
It Just Seems To Make Sense
Yesterday I spoke to a group of 18 year olds at an investment workshop. Normally when I speak to groups about the investment process, I talk about how the stock market has evolved over the past decades. As I thought about my presentation to this group, it occurred to me that they have no exposure to the history of the market and therefore might not have the mindset that trading stocks was to invest. Boy was I wrong. They had just finished playing the stock market game as I entered the room....
June 17, 2013
Gate Keeper
For tens of millions of Americans their 401(k) account is the only way that they can accumulate wealth and be able to retire with dignity. The quality of the investment decisions that these individuals make will determine how much money they will be able to accumulate. But, unless they have good investment choices available to them, the best intended and the best educated of these individuals will fall short. Recently, I have been approached by numerous individuals and asked to review their 4...
June 15, 2013
Opportunity Knocks
Today’s edition of “The Intelligent Investor” is written for the 78 million Americans who have a 401(k). The article discusses the downturn in the market that occurred following Bernanke’s announcement that the Federal Reserve’s bond buying program is about to end. Zweig describes this as an excellent opportunity for long-term investors to buy into the market at a reduced price. As I continually point out, one of the unique characteristics of 401(k) account is that money is added to the accou...
June 14, 2013
Do You Need John Wooden?
In the 1960s, John Wooden coached the UCLA basketball team to seven consecutive national championships. No one else has even come close. Two of my friends from high school played for John Wooden. They told me that Wooden was an average basketball technician. His players were good athletes, but not extraordinary athletes. So to what can we attribute Wooden's success? The entire focus of coach Wooden was discipline. His teams rarely made mistakes and never made stupid ones. In order to become a...
June 13, 2013
Indexing As Market Insurance
An investment approach of buying one or two index funds and passively holding on to them is a proven solid long run approach. But, it is definitely not for the faint of heart. Academics define risk not as the loss of all your money, but as volatility in the value of your portfolio. This means that, in the short run, the value of your portfolio fluctuates up and down, but in the long run it reaches a favorable outcome. However, not every investor lives in the long run. An approach designed to...
