Archive for November, 2009

2010 – Shaping Up as a Promising Year for Companies

Monday, November 30th, 2009
2010 – Shaping Up as a Promising Year for Companies

The third quarter earnings reports are now in, and the implications for 2010 are good. In addition, the economic leading indicators continue to signal improvement ahead. And yet investors are still selling their stocks and buying bonds. This week, we’ll discuss why it’s a great time to consider tuning up your portfolio by doing... »

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The Day After Thanksgiving – A Good Time To Study History

Friday, November 27th, 2009
The Day After Thanksgiving – A Good Time To Study History

Black Friday typically has dull markets, giving us the opportunity to sit back and think – just the environment to focus on past lessons. Looking back often provides a useful perspective. A good historical period to read about is the Panic of 1907, if you haven’t already done so. That 100-year old event contains... »

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Market Cap Weighted Stock Indexes – Common, but Flawed

Wednesday, November 25th, 2009
Market Cap Weighted Stock Indexes – Common, but Flawed

Market capitalization is commonly used for weighting stocks in an index. In normal times, this is a sound practice when index companies vary widely in size. However, at times market cap weighting produces misleading information. Here’s what happens… »

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Dow Jones Industrial Average – How Much Should Each Stock Weigh?

Tuesday, November 24th, 2009
Dow Jones Industrial Average – How Much Should Each Stock Weigh?

The Dow Jones Industrial Average (DJIA), like all indexes, needs a method for weighting each of its component stocks. Yesterday, I said I prefer to apply an equal weight. Today, I will explain that rationale further because, in the days ahead, I will be doing some analysis using that approach… »

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The Dow Jones Industrial Average – An Index with a Cool Factor

Monday, November 23rd, 2009
The Dow Jones Industrial Average – An Index with a Cool Factor

The Dow Jones Industrial Average (DJIA) gets a bad rap. It has been labeled as passé, flawed, unrepresentative, simplistic and old economy – everything but “cool.” However, following the recent market turmoil and economy dislocations, it now possesses what no other index has: focus and understandability. This is why I believe the DJIA is... »

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Ratios – Hedge Funds’ Meat and Poison

Friday, November 20th, 2009
Ratios – Hedge Funds’ Meat and Poison

To close out this week’s focus on ratios, let’s look at hedge funds, the most sophisticated users. Their offsetting, push-me/pull-me risk strategies often win in normal times. However, occasionally the unexpected happens… »

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Beyond P/Es – Avoid Over-reliance on Ratios

Thursday, November 19th, 2009
Beyond P/Es – Avoid Over-reliance on Ratios

Ratios provide important information everywhere in our lives, helping us to understand and compare. However, they carry dangers of building false expectations and giving incorrect investment guidance. Here’s where the problem lies: »

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The Defect in Price/Earnings Ratios – Part 2

Wednesday, November 18th, 2009
The Defect in Price/Earnings Ratios – Part 2

Yesterday we saw the challenge in using price/earnings ratios (P/Es) to analyze individual stocks. Today, we turn to the added difficulties in combining multiple company P/Es into a usable average P/E for portfolios and indexes… »

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The Defect in Price/Earnings Ratios – Part 1

Tuesday, November 17th, 2009
The Defect in Price/Earnings Ratios – Part 1

The price/earnings ratio (P/E) is a popular stock valuation measure. However, it has a flaw, which I explain below. Tomorrow, in Part 2, we will examine how the flaw affects portfolio and stock market analysis. »

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Missing the Trees for the Forest – Look at Individual Stocks

Monday, November 16th, 2009
Missing the Trees for the Forest – Look at Individual Stocks

I just read that stocks are overvalued. The proof? The forward price/earnings ratio (P/E) for the Standard & Poor’s 500 Stock Index (S&P 500), now about 17 times, is at the high end of its historical range. At this point in the economic and financial cycle,... »

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Friday the 13th – A Stock Market Oasis?

Friday, November 13th, 2009
Friday the 13th – A Stock Market Oasis?

There are many articles this week about the number-13 and the Friday-the-13th phobias, with their impossible-to-pronounce Greek labels. I thought a look at the record might help us prepare for today’s stock market. Here is what I found… »

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Congress Reconsiders Fed’s Independence – It’s Time To Be Concerned

Thursday, November 12th, 2009
Congress Reconsiders Fed’s Independence – It’s Time To Be Concerned

Politicians regularly deliver “grin and bear it” moments. Mostly, we write them off as political life’s peculiarities. Occasionally, though, proposals come along that run counter to long-held beliefs and accepted principles. They can be brilliant, or they can be dangerous. I believe one of the latter variety is upon us – an effort to... »

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How To Gain Historical Perspective – Part 2

Wednesday, November 11th, 2009
How To Gain Historical Perspective – Part 2

Yesterday, we saw how using a logarithmic scale can provide a better historical perspective. Today, we take on inflation… »

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How To Gain Historical Perspective – Part 1

Tuesday, November 10th, 2009
How To Gain Historical Perspective – Part 1

Over the past year, we have seen numerous economic and investment articles use the adjective, historical. It has been applied to “new records,” similar to sports reporting; and it has taken on a meaning similar to amazing, unbelievable and incredible. But there is another, more valuable, use for the word. To understand recent events... »

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Look Past the Headlines – Employment Trends Are Good

Monday, November 9th, 2009
Look Past the Headlines – Employment Trends Are Good

The media is filled with 10.2% Jobless! news. Breathless reporting attracts an audience, but it does little to enlighten. In fact, it misleads and frightens. The real news is that the leading employment indicators continue to improve. We have real, positive trends in the works. If you haven’t done so, please read my comments... »

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