George Morgan's Blog, page 5

Random Walking

In his classic book, “A Random Walk Down Wall Street,” Burton Malkiel states that knowledge of what happened in the world and markets yesterday is of no value in predicting what the market will do today. The headline on today’s Wall Street Journal reads “Yellen Debut Rattles the Market.” The lead article reported that Fed Chairperson Janet Yellen hinted that the Fed will start to raise interest rates over a year from now and this caused a selloff by investors who feared a slowdown or decline...

Yellen And The Three Bears

The Fed just released the first FOMC report of the Yellen era. It read a bit like Goldilocks and the three bears; not too hot, not too cold, somewhere in the middle, but not just right. As expected, Yellen showed her dovish leanings and stated there would be no change in interest rates in the foreseeable future. The only real news was that the Fed has decided to drop the 6.5 percent unemployment rate as the tripwire for an increase in interest rates. I think you can translate that into, the F...

Same Information, Different Results

For the past five days business days, the Wall Street Journal has had numerous stories on the troubles facing Crimea and General Motors. There is an ignition issue in a number of GM cars and the problem can be traced back more than a decade. It was not until last week that the automaker announced a recall, causing some to speculate that the delay will probably trigger a congressional investigation. Probable cost of the recall $3 million. Last week, both the market and General Motors stock exp...

Not Sure What I Believe

The Efficient Market Theory says that markets and sometimes individual stocks, respond immediately to all the available information. The markets activity in the last few days may or may not confirm that. Last Thursday, the market decided that the situation in Crimea had reached a tipping point and the market went down over 200 points. Over the weekend, Crimea voted to secede from Ukraine and become part of Russia and today the market is up almost 200 points.  One partial explanation I re...

No Explanation???

On Thursday, the Dow Jones Industrial Average closed down 213 points. The explanation given by the Wall Street Journal was that it was a response to the situation in Crimea, but as near as I can tell there was now major change in the standoff between the Russians and the West on that day. On that day all thirty of the Dow stocks closed lower. Also on that day, eighteen of the Dow stocks had PEs fewer than 15 which means that they were not overpriced. In addition none of the Dow stocks were li...

90% Rule

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...

Some Differerences

Conceptually, an index mutual fund and an index exchange traded fund are to identical. There is however, one difference that has the potential to make them only cousins; that difference is the fact that exchange traded funds are bought and sold on an exchange just like individual stocks while index mutual funds are bought and sold through the investment company that sponsors them. There are several ramifications of this distinction. The first is that the price of an exchange traded fund is es...

Amazing Numbers

Early advertisements for the SPDR ETF’s expressed its marketing proposition in a very straightforward manner; “Now you can trade the S&P 500 index all day long in real time.” It has   lived up to its promises because has become the most traded stock in the world. Average trading volume for the SPDR is in range of 220 million shares, which in 2013 amounted to 6 trillion shares changing hands in just twelve months. Its total assets are in the $100 million range so that volume amou...

401(k) Crimes

Recently, I was approached by a lady I know, who shall remain anonymous. She asked me if I would mind looking over her 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 company...

More On What You're Paying For

All mutual funds, both actively managed an index funds, are the product of an investment company. Investment companies are for profit companies. They build and operate mutual funds which they sell to the investing public. All mutual funds generate profits and expenses. The expenses are paid for by the customers and the investment company keeps the profits. Because of the activity that they generate in their portfolios, actively managed mutual funds are costly to operate. This is why actively...