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Happy Hour: Optimism And Selling Low

June 28, 2013

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Jon

Welcome to the end of the week and another edition of Happy Hour! Just sit back, relax, and enjoy your end of the week roundup of all things interesting in the land of money.

Optimism

Investing seems to be only place where there’s a constant struggle between optimism and pessimism. The markets are full of both and the media is their battleground. There’s a constant flow of information trying to convince us to one side.

It’s easy to get swept up in the all the short-term rhetoric (the sky is always falling for someone). The odds for long-term success is so much rosier. Most of the time we should just shut it off and focus on the big picture. Continue Reading…
The Case For A Regional Bank ETF

June 27, 2013

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Jon

The banking sector was hit hard by low interest rates. Now that rates are rising, it stands to reason both national and regional banks should do better with higher interest rates. An easy way to play this is through a bank ETF.

There’s a big difference between the two types of banks. Big banks have the added risks from their investment bank, proprietary trading desk, and global reach. Not to mention big banks are still dealing with a higher legal, regulatory, and consumer scrutiny since the crisis.

However, regional banks follow a more traditional banking model, where banks make money on the spread between interest paid on deposits and the interest charged on loans. When interest rates rise, the spread widens and profits increase. Continue Reading…
What Affects Stock Price?

June 25, 2013

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Jon

Some investors focus on owning stocks outright others use a diversified approach through index funds, ETFs, or mutual funds. Both deal with the daily swings in stock prices.

Whatever your flavor, price changes have a big impact on your returns. Understanding what affects stock price changes in the short-term can lead to higher long-term returns.

Supply And Demand

The basic answer to what affects stock price is supply and demand. For every stock transaction a buyer and seller gets together and agrees on a price. When there are more sellers than buyers, the price is pushed lower. Alternatively, when there are more buyers than sellers, the price moves higher.

Still, there are limits to both sides. Supply is limited by the number of outstanding shares. Even then, that supply is limited further by the number shareholders willing to sell. And demand is bound by the price buyers are no longer willing to pay. Continue Reading…
Happy Hour: Sell Off And 4 Minute Workout

June 21, 2013

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Jon

Welcome to the end of the week and another edition of Happy Hour! Just sit back, relax, and enjoy your end of the week roundup of all things interesting in the land of money.

Sell Off

Yesterday was the biggest sell off this year. If you were surprised by it, know that it was going to happen eventually. A market up 16% over the first five months this year is impressive, expecting more is just being greedy. By the way, after yesterday your S&P 500 index fund is still up 9% despite the fall from the May highs.

My basic belief is this – Bernanke just orchestrated a sell off to prevent an equity bubble. It worked. In effect, stock prices lost the QE premium that investors have paid. This should push stocks to trade on fundamentals going forward. Continue Reading…
The Feds Power Of Words

June 20, 2013

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Jon

Not much has changed in the past three years with the Fed and monetary policy. QE is still ongoing. Inflation is low. Unemployment is slowly falling. The Street is still trying to predict the end of QE. So nothing has changed except for one word.

Taper ta·per (tāpər): To become gradually smaller or less; slacken and finally stop. Bernanke’s beard tapered off.

Who knew one word had so much power. Since its introduction, dividend stocks have sold off and bonds have sold off. Asset bubbles aren’t talked about as much (those were the days). One word seemingly ended worries of three asset class bubbles while creating new risks for each at the same time. Continue Reading…
Building An Investment Checklist

June 18, 2013

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Jon

If you read any great investing books you’ll come across an extended investment checklist. Lynch had his simple philosophy. Fisher had fifteen points. And Graham had his portfolio policy and value formula. Even Buffett and Munger talk about keys to a great company.

The idea of a checklist isn’t new. It’s used by a number of professions, like engineers, pilots, and doctors, to prevent mistakes. There’s a reason every flight seems like a ritual. Both pilots and flight attendants go through a checklist before, during, and after each flight.

As a passenger it seems trivial, but they do it for a reason. It works. It makes sense too. Lives are on the line and anything that prevents errors and mistakes, inevitably saves lives. And all because of a simple checklist.

You can apply the same concept to your portfolio and investments. Continue Reading…