Schwartz Financial Weekly Commentary 1-9-12

The Markets

Which stock characteristic most impacted the S&P 500’s performance in 2011?

To answer that question, Bespoke Investment Group performed a decile analysis and concluded that having a high dividend yield was the most important factor affecting stock prices in 2011.

In their analysis, they discovered that the three deciles with the highest dividend yield were the only ones to experience a positive return for the year. In fact, while the S&P 500 index was unchanged for the year, the top three highest-yielding deciles rose 10.4 percent, 6.4 percent, and 8.7 percent, respectively. The remaining seven deciles all experienced a loss for the year.

Now, it won’t always turn out that the highest dividend yielding stocks are the best performers. Some years, investors will be more adventurous and bid up the riskier stocks that tend to pay low or no dividends.

Will the tide turn in 2012 and see the outperformance of the low or no dividend stocks? A lot will depend on how the economy shakes out.

Based on last week’s unemployment report, it looks like we ended 2011 with some economic momentum. The U.S. economy added 200,000 jobs in December and the unemployment rate dropped to 8.5 percent, the lowest in almost three years, according to BusinessWeek.

This week marks the beginning of another quarterly earnings season so the next 30 days or so should give us a good indication of the strength of the underlying economy. 

Data as of 1/6/12	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	1.6%	1.6%	0.5%	11.0%	-2.0%	0.9%
DJ Global ex US (Foreign Stocks)	0.2	0.2	-16.1	7.7	-4.9	4.3
10-year Treasury Note (Yield Only)	2.0	N/A	3.4	2.5	4.7	5.1
Gold (per ounce)	2.7	2.7	18.1	24.0	21.5	19.2
DJ-UBS Commodity Index	1.3	1.3	-10.3	4.9	-1.9	4.4
DJ Equity All REIT TR Index	-0.2	-0.2	7.8	20.8	-1.2	10.1

Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results.  Indices are unmanaged and cannot be invested into directly.  N/A means not applicable.

WERE THE “NIFTY-FIFTY” REALLY THAT NIFTY? Back in the early 1970s, pundits fawned over some of the era’s fastest growing, industry-leading companies who seemed to defy the sluggish overall economy. Dubbed the Nifty-Fifty, these glamour stocks were well-known “one-decision” stocks that institutional investors clamored to own. So, how well did these stocks do over the last 40 years? Were they truly “one-decision” stocks?

While there was no official list of the Nifty-Fifty, two competing lists of 50 stocks are commonly cited, according to a research report titled, “The Nifty-Fifty Re-Revisited,” by Jeff Fesenmaier and Gary Smith of Pomona College. For today’s purpose, we’ll look at the 24 stocks that made both lists and were dubbed the “Terrific 24” by Fesenmaier and Smith.

Some of the household names on the Terrific 24 list are doing well, while there are some that are lagging far behind.

With 40 years of history, here are three key lessons we can learn from the Nifty-Fifty story:

1.   Some “glamour” stocks do remain glamorous for many years, although some have had  “rough periods” over the past 40 years.

2.   Promoting “one-decision” stocks is more of a headline-grabbing marketing strategy than a sound investment strategy.

3.   Even the “best” stocks can fall to zero so it’s important to have a sell discipline. 

As the British statesman and philosopher Edmund Burke said, “Those who don’t know history are destined to repeat it.”

Weekly Focus – Think About It

“The supreme purpose of history is a better world.” --Herbert Hoover, U.S. President

Value vs. Growth Investing (1/6/12)

Name	1-Week	YTD	4-Week	13-Week	1-Year	3-Year	5-Year
US Market	1.67	1.67	1.58	10.40	1.95	14.33	0.78
Large Cap	1.70	1.70	1.89	10.33	2.86	12.72	0.21
Large Core	1.81	1.81	2.43	11.52	4.23	11.82	1.52
Large Growth	2.08	2.08	0.57	8.03	2.40	17.35	1.94
Large Value	1.22	1.22	2.63	11.39	1.28	9.19	-3.11
Mid Cap	1.67	1.67	0.61	10.24	-0.03	18.44	2.00
Mid Core	1.56	1.56	1.73	12.62	3.15	20.18	2.87
Mid Growth	1.96	1.96	-1.92	6.70	-1.29	19.71	3.08
Mid Value	1.50	1.50	2.00	11.33	-2.19	15.29	-0.26
Small Cap	1.38	1.38	0.93	11.63	-2.33	18.66	2.39
Small Core	1.63	1.63	1.44	11.37	-3.68	18.39	1.17
Small Growth	0.82	0.82	-1.40	8.89	-1.90	18.76	3.27
Small Value	1.63	1.63	2.71	14.65	-1.52	18.69	2.40
US Core	1.75	1.75	2.24	11.72	3.54	13.99	1.91
US Growth	1.97	1.97	-0.06	7.82	1.50	18.01	2.34
US Value	1.30	1.30	2.51	11.61	0.34	11.06	-2.13

©2004 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) is not warranted to be accurate, complete or timely. Morningstar is not responsible for any damages or losses arising from any use of this information and has not granted its consent to be considered or deemed an “expert” under the Securities Act of 1933. Past performance is no guarantee of future results.  Indices are unmanaged and while these indices can be invested in directly, this is neither a recommendation nor an offer to purchase.  This can only be done by prospectus and should be on the recommendation of a licensed professional.

Office Notes:

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Have you thought what would happen to your lifestyle if you became too sick or hurt to work? What would happen to your income or your dreams for retirement?

Want to compare your DI coverage?  I will be happy to compare your coverage to the top three companies writing Disability Insurance coverage today.

Best regards,     

Michael L. Schwartz, RFC®, CWS®, CFS

P.S.  Please feel free to forward this commentary to family, friends, or colleagues.  If you would like us to add them to the list, please reply to this email with their email address and we will ask for their permission to be added. 

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This information is provided for informational purposes only and is not a solicitation or recommendation that any particular investor should purchase or sell any security. The information contained herein is obtained from sources believed to be reliable but its accuracy or completeness is not guaranteed.  Any opinions expressed herein are subject to change without notice.  An Index is a composite of securities that provides a performance benchmark.  Returns are presented for illustrative purposes only and are not intended to project the performance of any specific investment.  Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly.  Past performance is not a guarantee of future results.

* The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

* The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices. 

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

* Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.

* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

* The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Past performance does not guarantee future results.

* You cannot invest directly in an index.

* Consult your financial professional before making any investment decision.

* To unsubscribe from our “market commentary” please reply to this e-mail with    “Unsubscribe” in the subject line, or write us at “mike@schwartzfinancial.com”.

Sources:

http://www.bespokeinvest.com/thinkbig/2012/1/6/2011-in-a-nutshell.html
http://www.businessweek.com/ap/financialnews/D9S3KP6O0.htm
http://finance.yahoo.com/q?s=XRX&ql=0
http://finance.yahoo.com/q?s=MTG
http://www.forbes.com/forbes/2002/1125/196.html
http://finance.yahoo.com/news/Kodak-prepares-Chapter-11-reuters-1851501790.html?x=0
http://finance.yahoo.com/q?s=ek&ql=1
http://economics-files.pomona.edu/GarySmith/Nifty50/Nifty50.html

http://thinkexist.com/quotation/those_who_don-t_know_history_are_destined_to/346796.html