Finance and Financial Management Commons^™

China Cuts Interest Rates, Steven D. Dolvin

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In an attempt to spur growth, the People's Bank of China (i.e., the Chinese central bank) recently cut interest rates. As a result, the Chinese stock market rose another 3 percent. See article here, Yahoo.

Battle Of The Sexes, Steven D. Dolvin

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As this recent WSJ article points out, men and women approach investing differently. The best investors may be those who are able to capture the "best of both worlds."

Here's A Good "Tips", Steven D. Dolvin

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Treasury Inflation Protected Securities, or TIPS, offer investors a lower coupon rate; however, in exchange, investors receive protection against the negative impact of inflation. Higher inflation leads to a loss in purchasing power, as well as higher interest rates, which reduce bond prices. The inflation protection offered by TIPS offsets these impacts by increasing the face value (called the accrued principal) in line with inflation, meaning that periodic coupon payments rise with inflation, as does the return of principal at maturity. See this Bloomberg article for a discussion of why TIPS are back in favor.

Etf Trading, Steven D. Dolvin

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ETFs are designed to track a particular underlying index. As these "baskets" of securities are traded, excessive demand or supply of shares can cause a disparity between the price of the ETF and the underlying value of securities held. However, because of the ability of large institutions to trade directly with the ETF firm to create and redeem shares, arbitrage keeps prices in line. See article here, WSJ.

Apple Added To The Dow, Steven D. Dolvin

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The DJIA (Dow Jones Industrial Average) is an index of 30 companies that are picked to represent the broad economy. As this Fox Business article notes, Apple is replacing AT&T in the index. Given that Apple is the largest company by market cap, why is Apple just now entering the index? The answer is that the Dow is price-weighted, so Apple's recent 4:1 split brought the price low enough, such that it would not unduly influence the overall index movement.

Warren Buffet Criticizes Money Managers, Steven D. Dolvin

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Warren Buffet, a pillar of active management, suggests that most investors are best served by investing in passive index funds. This is primarily due to the high fees charged by managers, particularly those in hedge funds. See article here, Yahoo.

Blog Central, Steven D. Dolvin

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For those looking for some additional investing blogs to follow, here is a list of the "20 Best Investing Blogs of 2015."

Volatility Adds Risk For Market Orders, Steven D. Dolvin

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With a market order, trades transact at the current market price. With increased high frequency trading, more and more stocks are seeing dramatic swings in prices within a short time period. Such swings add risk for market orders, as investors may get a price vastly different from what they had expected. In such cases, limit orders may be useful to minimize price risk. See article here, WSJ.

2 Days, $1 Million, Steven D. Dolvin

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Options allow investors to generate higher levels of returns (and losses) as compared to taking positions directly in the stocks that the options are derived from. For example, a recent MSN article discusses a trader that purchased $1.7 million worth of call options on AMAT. The stock price increased 5% in two days, resulting in a profit of $1.4 million, which is an 82% return.

International Investing, Steven D. Dolvin

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Investing is a global activity, so there is often very little difference with regard to many activities (such as how margin works, order types, etc.). The biggest difference, however, is the possible impact of currency on returns. One argument is that currency fluctuations reduce return correlations, so they should not be hedged within a portfolio. Others, however, have recently turned to currency hedged investments to protect against the rising dollar when invested in foreign assets. See article here, Yahoo.

Investing In Sin....., Steven D. Dolvin

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Socially conscious investing has attracted numerous followers, and this has precipitated the development of many socially conscious mutual funds. In contrast, other investors have taken an alternative approach, opting for so-called "sin funds." As this WSJ article points out, these sin funds have actually performed quite well over the last 10 years.

Growth In Etf Assets Continues, Steven D. Dolvin

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Given the advantages of liquid trading and lower management fees, ETFs continue to add assets. As a recent Wall Street Journal article discusses, US ETF assets surpassed $2 Trillion and more asset managers are rolling out ETFs.

Traditional Vs. Roth Ira, Steven D. Dolvin

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Aside from company sponsored 401(k) plans, investors can use either traditional or Roth IRAs to invest for retirement.investors. In a more recent development, companies have also begun offering the choice between traditional or Roth 401(k)s. So, it is important to understand the relative advantages of each type of account. See a good summary article here, WSJ.

More Evidence For Efficient Markets, Steven D. Dolvin

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The market's performance this year has surpassed that of most professional money managers. In fact, this is the worst (relative) year in three decades for professionals (see post here, The Reformed Broker). The level of competition and the high level of fees prevent meaningful outperformance. The result -- a large influx of capital into index funds.

Fee Based Compensation Aligns Interests, Steven D. Dolvin

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Retail financial professionals have increasingly moved away from commissions and to a standard fee-based structure. This change should better align the interests of clients and advisors. For example, there is less incentive to trade. Moreover, there is little need for advisors to select funds that charge a high load, as their compensation no longer depends on the "kickback" received from the fund companies. As a result, the fund flow to high load funds has turned negative. See article here, Investment News.

2015 Macro Trends, Steven D. Dolvin

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While it is still early, Goldman Sachs has posted its 10 market themes for 2015. These may be useful in top-down analysis. See article here, Barrons.

Short Term Market Indicators, Steven D. Dolvin

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For those interested in technical analysis, some traders are suggesting that the market is set for a pull back. See article and video here, Yahoo.

S&P Breaks Key Tecnical Mark, Steven D. Dolvin

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The S&P fell below its 200-day moving average, a key negative technical indicator. Investors should pay close attention to see if this level holds. See article here, yahoo.

Alibaba Ipo, Steven D. Dolvin

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Most firms that undertake an IPO subject insiders (founders, initial investors, etc.) to a lockup period of, typically, 180 days. For Alibaba, this is not the case, which suggests that many additional shares could hit the market immediately after the IPO. This may mute the initial return that new shareholders could receive. See article here, WSJ.

Update: Even with insiders selling shares, the Alibaba IPO was well subscribed, generating a 38% return on the first day. Moreover, with additional shares sold (i.e., the overallotment option), the Alibaba IPO is reportedly the biggest IPO in history, raising $25 billion. See article …

Diversification Revisited, Steven D. Dolvin

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Asset allocation is widely considered to carry the most weight in determining a portfolio's overall return, but we often avoid/ignore many categories that could be helpful. See article here for a discussion of why diversification matters, Fidelity.

On the contrary, though, some analysts believe too much diversification is not a good thing. See article here (WSJ) to help answer the question, "How Much Diversification Is Too Much?"

Active Managers Vs. Index Funds, Steven D. Dolvin

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Watch this video to facilitate discussion about active vs. passive investing, as it reviews the large amount of money being invested with Vanguard.

All-Time Market Highs And Market Timing, Steven D. Dolvin

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With the market at all-time highs, many investors are left wondering if stocks are still attractive investments. Based on PE ratios, the market's current level of 17.5 if slightly above the historical average, but not excessively so. Thus, if corporate profits remain strong, valuations could remain stable (so says some analysts). See article and video here, Fidelity. The video also discusses the difficulty of market timing, which is a good reminder for most investors.

Etfs That "Mimic" Buffet, Steven D. Dolvin

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Watch this video to facilitate discussion about ETFs that use criteria similar to those applied by Warren Buffet.

Fund Manager Performance, Steven D. Dolvin

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Fund managers, on average, have historically trailed the broad market. However, this year has been exceptionally bad for managers, with only 23% of large-cap funds outperforming the index. See this article (WSJ) for some explanation from Goldman Sachs.

The Future Of The Nyse, Steven D. Dolvin

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Watch this video to discuss the sustainability of the iconic NYSE.

Facebook Options And Ipo Expiration, Steven D. Dolvin

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After a company goes public, inside investors must hold stock until after the "Lockup Expiration." Research suggests that prices fall around this event, and investors are using options to try to benefit from this phenomenon. Watch a related video here, WSJ.

Vanguard Vs. The Industry, Steven D. Dolvin

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For years, Jack Bogle (the founder of Vanguard) has touted the benefit of passive investing, which is primarily driven by the relatively low fees they charge. Moreover, Bogle has highlighted the inability of active investors to outperform the market. Recent large investor flows into Vanguard products suggests that investors are increasingly agreeing with Bogle. See article here, WSJ.

Do Women Generate Better Returns?, Steven D. Dolvin

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Some prior research suggests that women make for better investors, primarily because they generally trade less than men (meaning lower transaction costs). However, a new fund aims to exploit the benefit women may provide as board members. The Barclays Women in Leadership ETN will invest in companies with a female CEO or a board that has a membership of at least 25% women. See here for an article that discusses the new fund (WSJ).

See previous post (ETFs vs. ETNs) for a discussion of the fund structure.

Time To Sell?, Steven D. Dolvin

All Chapters

For technical traders, it may be time to sell. While the market has yet to make a "death cross," some other indicators are saying sell. In particular, a recent WSJ article identified three signals that recently occurred in tandem: overvaluation based on earnings multiples, extreme divergence in sector performance, and excessive levels of bullish enthusiasm. This combination has occurred six times since 1970, with each event resulting in market drops of at least 22%. Will this happen again?

Going Global, Steven D. Dolvin

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For diversification reasons, most investors should consider investing internationally. However, many investors have limited knowledge about how to do so or about how to determine how much exposure to have internationally. Click here for a recent WSJ article that provides some guidance on these issues.