George Morgan's Blog, page 8

Beta

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...

Is It Really Volatile?

In his Saturday column, Jason Zweig questions whether that the recent turbulence in the market is significant or just statistical illusion. He quotes a Harvard behavioral economist who coined the phrase “denominator blindness.” This means that we focus intently on swift and vivid changes but overlooked the base against which we should measure them. Consider a 150 point swing in the Dow when it is in 16,000 territory, which is less than the 1% change. Compare that to Oct. 19, 1987 when a decli...

Major Question??

This week’s Intelligent Investor is a gem and should be passed on to your grandkids. It begins with a few words about the recent volatility in the market. The Dow Jones Industrial Average has been up or down 100 points in 25 of the 26 trading days this year and in spite of a 5.8% decline; stocks are probably not very cheap. So what should you do? Jason’s advice is to tune out all of the talking heads and Wall Street Journal experts who are trying to extrapolate from the recent activity and fo...

Haphazard

The dictionary defines random as something done without a definitive plan, purpose or pattern.  At the beginning of the week the market was down because there were reports that the economies of the emerging markets were weakening and the implication was that would weaken the U.S. economy. Today the job numbers came out and the market had been expecting 185,000 new jobs to be created, but the actual number came in closer to 130,000. More bad news, but the market shrugged it off and is up...

End Of The World On Hold

Yesterday I had a number of people tell me that they are nervous and even scared about the recent activity in the stock market. The Dow has declined a little over 5% over the course the last few weeks. I have seen this happen hundreds of times and it is natural, so get over it. The real question they are asking is have I lost this money forever or will it come back? The answer to that is it depends upon what you are invested in. If you are invested in a Dow index fund or a vanilla big cap fun...

Read Between The Lines

If you read between the lines of the articles in the Wall Street Journal explaining why the market is doing what it is doing I think you will pick up the following; last year portfolio managers had a good year and received big bonuses. They’re not sure what lies ahead, so the old maxim don’t just stand there, do something applies. Some think that the Fed’s pull block on its bond buying means trouble ahead for the market. Thus the response of some is to reduce the percentage: stocks they own a...

It Is Official

Janet Yellen has been sworn in as the first Chairwoman of the Federal Reserve, but I see no reason to expect a major shift in Fed policy. The Fed’s mandate is to promote high levels of employment and stability of prices, however to focus on both of them at the same time is easier said than done. To promote high levels of employment requires the Fed to step on the monetary gas pile. To promote stability of prices requires the Fed to step on the monetary brake. Those who know Dr. Yellen conside...

When E.F. Hutton Speaks

Do you remember the TV ad from many decades ago that said “When E. F. Hutton talks, people listen?” Good Harbor Financial is a fast growing money manager that deals in nearly $11 billion of exchange traded funds. Last month when Good Harbor adjusted its position in iShares S&P Mid-Cap ETF, that portion of the market rose more rapidly than did the broad market. Across Wall Street, traders take note when big ETF managers like Good Harbor step into the market because they can dramatically im...

Makes Even Less Sense

There is an article in today’s Wall Street Journal whose title is “What to Do When the January Indicator Says SELL.” The January indicator says that if the stock market ends the month of January in negative territory, there is a good possibility that it will end the year in a similar fashion. The article continues with quotes from experts who have studies the indicator. The first, a spokesman for a group of finance professors who have studied the theory and found no plausible explanation for...

Makes No Sense

In the last week and half, the market has fallen over 5%. The financial media tell us that this wave of selling is because the economies in the emerging markets are slowing down and the Fed has announced that they are cutting back their bond buying activities. So let’s take a look at this from a rational perspective using the tools of fundamental analysis. Yes, the emerging markets and the Fed news are potentially negatives. How negative? Will earning drop across the board by 5%, 10%? We have...