The Markets
Corporations are putting more cash in investors’ pockets.
In the past week, more than half a dozen Blue Chip companies
announced increases in their dividend payouts. In fact, Standard and Poor’s Corporation
said S&P 500 companies paid a record $34 billion in cash payments to
investors in August. That’s a pretty nice stimulus!
And, the largesse may continue. Howard Silverblatt, an
analyst from Standard and Poor’s, was quoted in MarketWatch as saying, “2012
should set a record high for cash dividend payments, 16 percent above that of
2011.”
While dividend payouts look good, another part of the stock
market is “diverging” and sending mixed signals.
There’s a century old investment management system called
“The Dow Theory” which was developed by Charles Dow through a series of
editorials in The Wall Street Journal
between 1900 and 1902. According to this theory, in a healthy stock market, the
Dow Jones Industrial Average and the Dow Jones Transportation Average should
rise in sync.
The theory is based on the idea that companies in the
industrial average “make the stuff” while companies in the transportation average
“ship the stuff.” If there’s a divergence in the movement of the industrial
average and the transportation average, then you have to wonder which one is
potentially giving a misleading signal about future economic activity.
So, what’s The Dow Theory signaling now? It’s flashing red
because, as of last week, the Dow Jones Industrial Average was up
about 11 percent for the year while the Dow Jones Transportation Average was down
more than 2 percent. And, just last week, the industrial average was flat while
the transport index dropped a significant 5.9 percent – a substantial
divergence in just one week.
Like all investment systems, though, The Dow Theory is not
foolproof and this divergence could just be noise. In any case, it’s worth
keeping an eye on it as a possible early warning sign.
Data as of 9/21/12
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
Standard
& Poor's 500 (Domestic Stocks)
|
-0.4%
|
16.1%
|
25.2%
|
11.1%
|
-0.9%
|
5.8%
|
DJ
Global ex US (Foreign Stocks)
|
-0.8
|
10.1
|
8.6
|
1.6
|
-5.6
|
7.9
|
10-year
Treasury Note (Yield Only)
|
1.8
|
N/A
|
1.9
|
3.5
|
4.6
|
3.7
|
Gold
(per ounce)
|
0.5
|
13.3
|
-0.5
|
21.4
|
19.4
|
18.7
|
DJ-UBS
Commodity Index
|
-2.9
|
5.0
|
-4.1
|
5.7
|
-3.6
|
3.3
|
DJ
Equity All REIT TR Index
|
-3.1
|
17.5
|
31.1
|
19.9
|
2.8
|
11.4
|
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.
CAN YOU IMPROVE YOUR
INVESTMENT PERFORMANCE BY TAKING A TRIP to the local
drugstore and forking over two dollars to buy a spiral bound notebook? Yes,
says Nobel Prize winner Daniel Kahneman, one of the country’s preeminent
psychologists.
In a recent conversation with Tom Gardner of The Motley
Fool, Legg Mason Capital Management chief investment strategist Michael J. Mauboussin
recounted a conversation he had many years ago with Professor Daniel Kahneman.
Mauboussin asked Kahneman this question – What
single thing can an investor do to improve their investment performance?
Kahneman said buy a notebook and when you make an investment, write down why
you made the investment, what you expect to happen with the investment, and
when you expect it to happen.
Hmm. How does that translate into improved investment
performance?
As humans, we often succumb to what’s called “hindsight bias.”
Hindsight bias means we tend to think our forecasts were better than they
really are. For example, few people predicted the severity of the Great
Recession, but, after the fact, many people said they saw the signs of a bubble
about to burst. These people “misremembered” what they were thinking prior to
the Great Recession.
Kahneman says writing down what you’re thinking and what
your expectations are – at the time you
make an investment – allow you to go back after the fact and see how
accurate you were. This black and white analysis helps keep you honest about
your ability to make predictions and make good investment decisions. It helps
you avoid becoming overconfident. Overconfidence is bad because it makes you
think you’re smarter than you really are which could lead to making riskier
investments and losing lots of money.
Sometimes the best ideas are also the simplest.
Weekly Focus – Think About It…
“Well, I think we
tried very hard not to be overconfident, because when you get overconfident,
that's when something snaps up and bites you.”
--Neil Armstrong, astronaut, first
person to walk on the moon
Value vs. Growth Investing (9/21/12)
-0.58
|
17.73
|
3.53
|
10.82
|
27.64
|
13.69
|
1.82
|
|
-0.23
|
18.48
|
3.56
|
10.77
|
28.44
|
13.29
|
1.30
|
|
-0.24
|
17.78
|
2.90
|
9.49
|
29.22
|
13.06
|
2.62
|
|
-0.01
|
23.30
|
3.94
|
11.84
|
28.38
|
15.69
|
3.43
|
|
-0.45
|
14.63
|
3.79
|
10.85
|
27.97
|
11.12
|
-2.43
|
|
-1.50
|
15.52
|
3.20
|
10.72
|
24.08
|
14.62
|
2.71
|
|
-1.31
|
15.23
|
2.63
|
9.57
|
27.48
|
16.14
|
3.72
|
|
-1.55
|
16.52
|
3.65
|
10.82
|
18.73
|
15.65
|
2.36
|
|
-1.63
|
14.74
|
3.25
|
11.71
|
25.97
|
11.95
|
1.77
|
|
-1.69
|
16.03
|
4.10
|
11.64
|
29.39
|
14.39
|
3.87
|
|
-1.88
|
15.21
|
3.35
|
11.41
|
27.77
|
13.05
|
2.74
|
|
-1.33
|
16.52
|
5.10
|
12.01
|
26.78
|
15.52
|
3.54
|
|
-1.86
|
16.38
|
3.87
|
11.50
|
33.80
|
14.55
|
5.19
|
|
-0.57
|
17.14
|
2.88
|
9.64
|
28.79
|
13.79
|
3.01
|
|
-0.40
|
21.44
|
3.96
|
11.65
|
26.27
|
15.76
|
3.28
|
|
-0.78
|
14.78
|
3.69
|
11.07
|
27.97
|
11.53
|
-1.08
|
©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:
Giving Circles: Philanthropy with a New
Twist
Have you heard the story of jilted bride who turned
her wedding reception into a benefit for disadvantaged children? When Kyle
Paxman learned six weeks before her wedding that her fiancé was cheating on
her, she called off the wedding and her reception became a benefit for the Vermont
Children’s Aid Society and the international relief organization CARE USA
Paxman is admirable both for her
ability to turn a bad situation into something positive and for her innovative
approach to philanthropy. In fact, advisors around the country are reporting
that individuals and families they work with desire to do more to support the
charities they care about than simply write a check. Across the country,
donor-advised funds and foundations are on the rise. But you don’t have to
start a foundation to become more engaged in and more satisfied with your
philanthropy.
A giving circle is a
relatively new charitable giving vehicle that has gained in popularity over the
last ten years. As a kind of social investment club, a giving circle involves a
group of donors who place their charitable dollars into a pooled fund and
decide as a group which charities to support. Giving circle donors often commit
to participate for several years at an established dollar level, but the amount
of money varies greatly. For example, the Daily Muses Fund in Boston
requires just a $1 a day investment whereas the Barnabus Fund in Indiana
In addition to
leveraging the impact of their monetary contributions, many giving circles also
offer their expertise to the organizations they support. That is, in addition
to providing funds, circle members volunteer with the organizations in an
effort to contribute more to -- and to learn more about -- the causes they care about.
Giving circles vary in structure,
size, and charitable focus. Some giving circles are nothing more than a group
of friends with a bank account who meet in each other’s homes to discuss and
decide on where their funds will go. Giving circles are also popular business
colleagues. For example, AOL has
established Giving Tree Circles that allow AOL employees with common
interests to join together to volunteer and/or make charitable contributions.
The Robin Hood Foundation in New York
City
The vast majority of giving
circles start small. For example, the Daily Muses Fund is made up of ten Boston
area professional women interested in fostering the well being of women and
children. However, other giving circles have hundreds of members and governing
boards, and, as the amount of money they control becomes significant, many use
a community foundation to manage the financial aspects of their giving.
While giving circles can control
substantial amounts of money, what members universally report to enjoy most is
the opportunity to work in a group of like-minded individuals and to connect
meaningfully with the communities and causes they support. In the same way that
venture capital supports innovation in the business world, by providing
financial and intellectual capital, as well as networking resources, giving
circles are paving the way for future innovations in philanthropy.
Interested?
For more information, visit the Giving Network (GNet) at www.givingnetwork.org and the Giving Forum
at www.givingforum.org.
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.
Michael
L. Schwartz, RFC®, CWS®, CFS, offers securities through First Allied
Securities, Inc., A Registered Broker/Dealer, Member FINRA-SIPC. Advisory Services offered through First
Allied Advisory Services, A Registered Investment Advisor.
Schwartz Financial Service is not an
affiliate of First Allied Securities, Inc.
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.
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