Mullooly Asset Management

Fiduciary Fee-Only Financial Planner | Investment Advisor in Wall, NJ

stocks

Tim’s Top Links – 2/1/17

by

timFor all of the hype around the Dow hitting 20,000 for the first time, it sure dipped back below that level very quickly.  However, here we are again less than a week later, and the Dow is knocking on the doorstep of 20,000 once again.  Who knows, maybe this time it will stay above it!

Here’s what I’ve been reading this morning:

‘This Is Why You Need A Process’ – Ben Carlson – A Wealth Of Common Sense

‘The Dumb Money Isn’t So Dumb’ – Barry Ritholtz – Bloomberg View

‘How Wall Streeters Feel Right Now’ – Josh Brown – The Reformed Broker

‘The Illusion of Stock-Picking Skill’ – Daniel Kahneman – Wealthfront

‘Merrill Lynch Trying To Make Fees More Transparent’ – Investment News

ENJOY!

Tim’s Top Links – 1/10/17

by

Tim's Top LinksLast night something amazing happened.  Alabama lost a football game.  It doesn’t happen very often, so remember this moment.  It got me thinking about the markets though.  Recency bias has a way of making people think the current leaders will never fail, or make it difficult to imagine that happening.  For the longest time it was hard to imagine a college football world where Alabama wasn’t the top team.  However, that was obviously going to happen at some point.  Now it’s time to make way for a new champion: Clemson.  The same goes for the markets.  Eventually whatever is the very best performer at the moment will fall out of favor.

Here’s what I’ve been reading this morning:

‘Grandmasters of Work’ – Morgan Housel – Collaborative Fund

‘The Hardest Thing’ – Charlie Bilello – Pension Partners

‘4 Reasons to Buy Bonds in 2017’ – Peter Lazaroff

‘Dividend Stocks are the Worst’ – Meb Faber – Meb Faber Research

‘Does the 200-Day Moving Average Still Matter?’ – David Fabian – FMD Capital Management

ENJOY!

Even the S&P 500 Changes Holdings

by

Subscribe: RSS

According to many market experts, investors should buy and hold always and forever, right? If you’ve been told that before you might be surprised to learn that even the S&P 500 changes its holdings every so often. In fact, according to a recent Business Insider article:

“Since 1980, over 320 companies were deleted from the S&P 500 for business distress reasons”

Now some of these companies merged with others, some were absorbed in takeovers, but a good amount of them were dropped from the index for performance reasons. They no longer qualified as one of the top 500 US companies. If you do the math, the index has averaged 10 changes per year since 1980. The S&P 500 is widely regarded as the benchmark for most US investors. So when the index is actively making changes to its holdings, why must investors sit tight no matter what happens?

This statistic about changes to the S&P 500 interests us because we frequently see investors holding onto stocks they bought at much higher prices. Their reasons for holding on typically originate from the misguided belief that buy and hold means forever.

Ben Carlson had a great post back in September titled, “Some Stocks Don’t Come Back”, where he wrote:

“The fact that a company traded for a certain price in the past gives investors a false sense of hope that it will automatically go back to that previous price point. Sometimes this works, but trying to catch a falling knife can be a dangerous strategy if you don’t know what your’re doing.”

Danger lies in taking the buy and hold mantra too literally. The general message of buy and hold is a good one: think long term. However, taking it literally to mean never, ever sell is foolish.

What we look to accomplish through the use of point and figure charting is simple: measure supply and demand. We’ll never completely know why people decide to sell a stock, but we do know that when too many sellers show up at once supply can take over. An abundance of supply leads stocks into negative trends and alerts us to potential problems. By using these charts we look to hold onto sound investments for long periods of time and avoid questionable ones. There’s no pride in holding onto a $7 stock that you bought for $67.

Investing for the long term is a good mindset, but it doesn’t have to mean buy and hold forever. As you can see, even the passive S&P 500 index makes active decisions about what companies comprise it.

 

Sources:

http://www.businessinsider.com/sp-500-deletions-due-to-distress-2014-12

http://awealthofcommonsense.com/stocks-dont-come-back/

IBM Technical Outlook October 2014

by

In this week’s Mullooly Asset Management video, Tom takes a look at the point and figure chart of IBM. IBM reported subpar earnings this morning (October 20, 2014) and also reported paying one of their competitors to take a division off their hands. Not great news. IBM is a large component of the Dow Jones Industrial Average, and its negative earnings news has put a damper on the index so far today (as of 1 pm).

As Tom mentions in the video, we get all of our point and figure charts from Dorsey Wright and Associates. If you’re interested in learning about point and figure we highly recommend you visit their website: http://www.dorseywright.com

Watch the video for an in-depth analysis from Tom. The point to take away is that before this morning’s earnings new, IBM was already in a negative trend. When stocks are in negative trends, bad things tend to happen. In addition to being in a negative trend, IBM’s chart is a sell signal. It’s displayed poor peer and market relative strength as well.

Point and figure charts help us to stack the odds in our favor when we invest. We typically look for investments in positive trends, on buy signals, that display peer and market relative strength. Is this a perfect strategy? No, but it helps us stack the odds in our favor.

Equity Risk Premium: No Free Lunch Principle

by

With all the recent volatility in the market, it’s provided a good opportunity to remind people what risk premium is all about. Owning equity (stocks) inherently means you’re taking on more risk in return for the possibility of a larger reward. This is something a lot of investors forget. Josh Brown of The Reformed Broker recently had a great post about why stock investors get paid where he wrote:

“Bond investors, the lenders in this example, only ever get principal back and their interest payments – and over long stretches of time their after-tax, after-inflation profits from this activity are nowhere near what they could be had they owned equity.

Owners (equity investors) on the other hand, have a share in the future productivity of the enterprise – a much greater potential payout over time than bond interest and the return of their original capital – but they endure greater risk in order to earn this (the No Free Lunch principle).”

I enjoy Josh’s simple style of writing. He puts it into terms that are clear and understandable. My favorite part from the quote above is the “No Free Lunch principle”. Wouldn’t it be great it investors could earn higher returns without taking on more risk? Alas, you cannot have one without the other.

In the midst of a week like we’re currently experiencing, it’s a good opportunity to remind equity investors why they get paid a risk premium over bond investors.

Source:

http://thereformedbroker.com/2014/10/16/why-stock-investors-get-paid/