Tag Archives: Stocks

2020 Investment Outlook

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Investors should expect heightened market volatility in 2020. History tells us that it’s not uncommon for three to four large-cap equity stock market pullbacks of at least 5% to occur each year and market corrections of at least 10% can occur every year. As a result, it may be prudent for investors to position their stock portfolios away from higher-risk asset classes for safer asset classes.

Portfolio Guidance:

  • Cash has an important place in a portfolio as a volatility dampener and a source of funds.
  • Focus on higher quality assets.
  • Go beyond traditional fixed income for yield. Investors may consider equity dividends as another source of income.
  • Defense can be a good offense. Given expectations for market volatility, suggest reducing exposure to riskier assets.
  • Focus on longer-term diversification, as shorter periods are likely to be more volatile

Deciding to retire or not | 3 preretirement phases | Fidelity

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Key takeaways

  • While financial and work-related factors are the primary reasons people continue to work, nonfinancial factors like family, health, and lifestyle ultimately cause people to pull the trigger to retire.
  • Wellbeing in retirement is not just about money, or even intellectual stimulation. It’s largely about the freedom to do what you want, when you want.
  • As you enter a stage of preretirement, consider working with an advisor to help shape strategies for Social Security, health care, and cash flow in retirement.

When will you be ready to retire? Particularly if retirement is still far away, you’re probably thinking in terms of dollars—how many you will have and how long they will last. But new research finds that for many people, the decision to retire is not just about money. It’s about life, and the freedom to enjoy it.

That’s the conclusion of an extensive survey of over 10,000 pre-retirees and recent retirees. The online survey was conducted by Fidelity Investments in collaboration with the Stanford Center on Longevity and Greenwald & Associates1 and only included respondents who believed they had some control over if and when they would stop working full-time.

While financial and work-related factors are the primary reasons people continue to work, with eligibility for Medicare and Social Security as key factors, the survey also finds that it’s often nonfinancial factors like family, health, and lifestyle that ultimately cause people to pull the trigger to retire. Among retirees, 72% chose leisure as a very or somewhat strong reason to retire, 64% pointed to stress at work, and 62% cited a desire to spend more time with grandchildren.

“We’ve seen a shift in values as people near retirement,” says Eliza Badeau, Director of Thought Leadership at Fidelity. “Many people seem to desire freedom over money. It’s less about the money and more about spending time where it matters most to them,” she adds. “Most people say they look forward to the freedom that retirement brings such as spending time with their family or doing hobbies they enjoy—ultimately trading in that job stress for leisurely interests.”

Research finds that for many people, the decision to retire is not just about money. Discover 3 preretirement phases that are influencing peoples decision to retire here.

— Read on www.fidelity.com/viewpoints/retirement/time-to-retire

Cash Flow Analysis in Retirement

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Adding up all the money coming in and going out is called cash flow analysis, and it looks at all income from investments, properties, work, or anywhere else. And it looks at spending.

When it comes to cash flow, there are no hard and fast rules about what is good—it depends on personal goals and values. But there are some general guidelines to be consider.

  • Try to start early and save at least 15% of income for retirement—and any employer matching counts toward this goal.
  • Retirees should try to limit withdrawals from their savings to about 4% of their account balance in the year they entered retirement, though they can increase that for inflation each year.
  • Limit your monthly essential bills and housing costs to 50% of your monthly income.
  • Save about 5% of your income for short-term expenses.
  • Look to keep your total monthly debt bills below 36% of your monthly income.
  • Consider a growth portfolio consisting of (70% stocks, 25% bonds, and 5% cash) that would have allowed a retiree to withdraw more than 7% each year over 25 years of retirement—over 25% more than a conservative portfolio (20% stocks, 50% bonds, and 30% cash) with a sustainable withdrawal rate of 5.7%.3

Cash flow analysis may also show some opportunities for tax savings and other ways to make the most of one’s money.

Source: Financial health: Know your vital signs, FIDELITY VIEWPOINTS, 09/30/2019
3. The chart, “More stocks may mean higher anticipated withdrawal rates, but with less certainty,” was created based on simulations that relied on historical market data. The historical range analyzed was January 1926 to July 2018. These simulations take into account the volatility that a variety of asset allocations might experience under different market conditions. The illustration compares 3 different hypothetical portfolios—conservative, with 20% stocks, 50% bonds, and 30% cash; balanced, with 50% stocks, 40% bonds, and 10% cash; and growth, with 70% stocks, 25% bonds, and 5% cash. For each of the hypothetical portfolios, the maximum withdrawal rate was calculated such that the portfolios do not run out of money in 99%, 90%, and 50%, respectively, of the hypothetical scenarios. See footnote 4 for more information on asset classes and historical returns.

Burton Malkiel says his passive investing idea was called ‘garbage’ | CNBC

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  • Burton Malkiel said an early review of his famous book blasted his ideas about passive investing.
  • Malkiel’s book, published in 1973, influenced the thinking of many industry leaders who pioneered index funds, including Vanguard’s Jack Bogle.
  • Malkiel said there are still not enough investors taking advantage of passive strategies.

Investing is a method of purchasing assets to gain profit in the form of reasonably predictable income like dividends, interest, or rentals, and appreciation over the long term. Investing involves time period for the investment return and predictability of the returns.

Burton Malkiel, author of “A Random Walk Down Wall Street,” said the investment community thought his passive investing idea was “ridiculous,” Burton Malkiel said an early review of his famous book blasted his ideas about passive investing.

Malkiel’s book, published in 1973, influenced the thinking of many industry leaders who pioneered index funds, including Vanguard’s Jack Bogle. Malkiel said there are still not enough investors taking advantage of passive strategies.

The father of passive investing told CNBC on Thursday that the shift toward index funds has vindicated his ideas and that there is still too much active management. According to Malkiel, passive investing has outperformed ninety percent of active investing over a fifteen year period.

Burton Malkiel is an emeritus professor of economics at Princeton University and author of the famous investing book, “A Random Walk Down Wall Street.” He said on CNBC’s “Squawk on the Street” that his idea that most investors should invest passively was originally met with ridicule.

He believes that each investment has a firm anchor of something called intrinsic value. It means that when market prices fall down, a buying or selling opportunity arises. The theory of Investment Value determines the intrinsic value of stock and then use the concept of discounting in the process.

He also believes that discounting basically involves looking at the income backward rather than seeing how much money an investor has in the next year; an investor looks at the money expected in the future and see how much less it is currently worth. Intrinsic value of a stock is equal to the present or discounted value of all its future dividends.

Burton G. Malkiel is the Chemical Bank Chairman’s Professor of Economics Emeritus at Princeton University. He is a former member of the Council of Economic Advisers, dean of the Yale School of Management, and has served on the boards of several major corporations, including Vanguard and Prudential Financial. He is the chief investment officer of Wealthfront.

— Read on www.cnbc.com/2020/01/02/burton-malkiel-says-his-passive-investing-idea-was-called-garbage.html

IPO Stocks Luckin Coffee, Dynatrace, Progyny, Datadog, Ping Identity Near Buy Points | Investor’s Business Daily

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IPO stocks are hot right now, with several 2019 new issues acting bullishly, trading near buy points. Chinese Starbucks (SBUX) rival Luckin Coffee (LK) is one of five IPO stocks worth adding to your watch list this week. Dynatrace stock, Progyny stock, Datadog stock and Ping Identity stock round out the quintet.

Fertility services specialist Progyny (PGNY), cybersecurity play Ping Identity (PING) and app monitoring software maker Dynatrace (DT) are all profitable, while cloud software name Datadog (DDOG) is barking at the door of profitability. Luckin Coffee stock is a big money loser, but has tremendous sales growth.

— Read on www.investors.com/news/ipo-stocks-luckin-coffee-dynatrace-progyny-datadog-ping-near-buy-points/

Becoming a Better Investor

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  1. The secret to great investing is patience. Take the time to study, to learn and to practice. There is no rush. Make a Wish List of liked companies and wait for them to go on sale.
  2. Best investors often do best during market panics, when investors dump shares in fear, or when there’s unusual volatility, such when stocks soar to unrealistic levels.
  3. Take advantage of the greed and fear of other investors. Investors can profit by avoiding panics, picking up stocks for cheap in sudden selloffs and keeping emotions in check, even during volatile markets.
  4. Human emotion inevitably causes the prices of assets — even worthwhile assets — to be transported to levels that are extreme and unsustainable: either vertiginous highs or overly pessimistic lows.
  5. Focus on a company’s actual earnings, revenues and cash flow, and do not succumb to rosy projections and predictions about the distant future. Ignore the sometimes-enticing stories spun by bankers, analysts and others, the kinds that have led to huge losses for even sophisticated investors in recent years on high-profile companies.
  6. Security prices should generally fluctuate not much more than earnings and revenues. The reasons they fluctuate more are largely psychological, emotional and non-fundamental. The truth is that financial facts and figures are only a starting point for market behavior; investor rationality is the exception, not the rule; and the market spends little of its time calmly weighing financial data and setting prices free of emotion.
  7. Pick your spots, and only invest in areas you have a competitive advantage, perhaps due to a unique industry expertise. For all their skill, the firm only profits on barely more than 50% of its trades, a sign of how challenging it is to try to beat the market.
  8. “It’s different this time” are four of the most dangerous words in the business world — especially when applied, as is often the case, to something that has reached what in prior times would have been called an extreme. People’s decisions have great influence on economic, business and market cycles. And people don’t make their decisions based on science, facts or fundamentals.
  9. There are more factors and variables influencing financial markets and individual investments than most realize or can deduce. Investors tend to focus on the most basic forces, such as earnings, interest rates or short-ratios, but there are dozens of factors, perhaps whole dimensions of them, that are missed.
  10. Cycle positioning is the process of deciding on the risk posture of your portfolio in response to your judgments regarding the principal cycles. It primarily consists of choosing between aggressiveness and defensiveness: increasing and decreasing exposure to market movements. The recipe for success consists of (a) thoughtful analysis of where the market stands in its cycle, (b) a resulting increase in aggressiveness or defensiveness, and (c) being proved right. These things can be summed up as “skill” or “alpha” at cycle positioning.
  11. Detecting and exploiting the extremes of market cycles is really the best anyone can hope for. Between the extremes of “rich” and “cheap” — when the cycle is in the middle ground of “fair” — the state of the relationship between price and value is, by definition, nowhere as clear-cut as at the extremes. If you frequently try to discern where we are in the cycle in the sense of “what’s going to happen tomorrow?” or “what’s in store for us next month?” you’re unlikely to find success. I describe such an effort as “trying to be cute.
  12. A backcast is an exercise where you imagine having reached a goal and then you work backward to figure out what happened to get you there. Backcasting is a more instinctive exercise. After all, we generally plan for success. 
  13. A premortem imagines the opposite — failing to reach your goal — and asks “how did that happen?” Imaging failure, on the other hand, doesn’t feel good. But failing to do a premortem can ruin even well-thought-out strategies for long-term success. If we anticipate later actions that can undermine our plans, we can improve the likelihood of staying on course.

Source: https://www.marketwatch.com/story/turn-yourself-into-a-better-investor-by-learning-from-hedge-fund-star-jim-simonss-successes-and-failures-2019-11-07?mod=home-page

Source: https://www.marketwatch.com/story/oaktrees-howard-marks-has-5-tips-to-make-you-a-superior-investor-2018-10-02

Source: https://www.marketwatch.com/story/this-champion-poker-player-says-a-premortem-can-make-you-a-better-investor-2018-03-07

Why 30 Stocks Are Better Than 100 Or 500: How The Dow Beat The Nasdaq 1999-2019 – SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA) | Seeking Alpha

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Since its ETF’s launch in early 1999, the Nasdaq-100 actually underperformed the Dow Jones Industrial Average on a total return basis for most of 20 years, until last week.

Both the Dow and Nasdaq have outperformed the S&P 500 on a total return basis, leaving the Dow as the clear winner on a risk-adjusted basis.

Fundamentals point to the Nasdaq’s recent catch-up as a repeat of the late 1990s run-up, meaning the Dow is likely to outperform again over the next 20 years.

The Dow’s greatest advantage is its simplicity, and this should make it a leader in the trend towards direct indexing.

If I were to ask 80 investors under the age of 80 to describe the Dow Jones Industrial Average in one word, chances are the answers would include words like “narrow”, “outdated”, or even “irrelevant”.

I’m also sure a vast majority of that same sample of “young” investors would never have guessed that this old Dow index has actually outperformed the much more modern and sexy Nasdaq-100 Index on a total return basis over most of the past 20 years. In this article, I explain: the surprising past outperformance of the Dow over the Nasdaq, and advantages I believe will make the Dow a better starting point than Nasdaq or S&P for outperformance over the next 20 years.
— Read on seekingalpha.com/article/4310588-why-30-stocks-are-better-100-500-how-dow-beat-nasdaq-1999minus-2019

Animal Spirits

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Animal spirits refers the state of confidence or pessimism held by consumers, businesses and investors. Regarding financial markets, they represent the emotions of confidence, hope, fear, and pessimism that can affect an investor’s financial decision making, which in turn can fuel or hamper economic growth.

If spirits are low, then confidence levels will be low, which will drive down a promising market—even if the market or economy fundamentals are strong.

Likewise, if spirits are high, confidence among participants in the economy will be high, and market prices will soar.

According to the theory behind animal spirits, the decisions of investors and business leaders are based on intuition and the behavior of their competitors or other investors rather than on fundamental analysis.

Famous British economist, John Maynard Keynes believed that in times of economic upheaval, irrational thoughts might influence people as they pursue their financial self-interests. In 1936, Keyne published, The General Theory of Employment, Interest, and Money, where he postulated that trying to estimate the future yield of various stocks, companies, or financial activities using general knowledge and available insight “amounts to little and sometimes to nothing.”

Keynes referred to these psychological factors that make investors jump into the equity market — in the face of deep uncertainty and volatility, as animal spirits. He thought, only a manic, driven, strong-willed person would put capital at risk in periods of high uncertainty and volatility.

When animal spirits are strong, investment is sufficient to maintain aggregate demand; when they lag, aggregate demand falls, and the economy lapses into depression.

It is assumed that the only way people can make investment decisions in an uncertain and extremely volatile environment is if animal spirits guide them.

Source: CARLA TARDI, Animal Spirits, Investopedia, Updated Apr 20, 2019

What Are Cyclical v. Defensive Stocks? – TheStreet

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Cyclical companies are those that see higher revenue growth when the economy is growing and lower revenue growth – sometimes contractions — when the economy is in recession.
 
Defensive companies keep humming along whether or not the economy is growing.

— Read on www.thestreet.com/video/-what-are-cyclical-v-defensive-stocks–15178611

7 Low-Risk Investments With High Returns in 2019 | TheStreet

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Low-risk is a relative term when it comes to investing. The classic risk-free investment is Treasury securities, but even they carry some degree of price risk. For those looking for low-risk investments, here are some to consider….

— Read on www.thestreet.com/personal-finance/low-risk-investments-with-high-returns-15170504