Stocks

S&P Dividend Aristocrats

The S&P Dividend Aristocrats is an index of large companies with a history of increasing dividends each year. Since the index’s October 2011 inception (symbol SPHYDA), its total return was 35.5% (10-21-2011 to 5/20/2013) vs. a 36.2% return for the S&P 500 ETF (symbol SPY).

Market Timing Strategy

There is an old Wall Street saying, “Sell in May and go away.” The strategy is also known as the “Halloween indicator.”  More specifically, investors who believe in this strategy should sell their equity positions at the end of April, stay in cash equivalents for six months, and then go back into stocks right after Halloween.

 

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Life Expectancy

New Method For Stock Selection

During 2013, The Journal of Financial Economics is going to publish an article by Robert NovyMarx, a University of Rochester professor. The paper will show bargain-priced quality stocks outperformed the overall market by > four percentage points between 1963 and 2011. This gap is even greater than the gap between value and growth stocks over the same period. Moreover, this “quality bargain” approach tends to have less severe losses in market downturns and sometimes has a negative correlation to value.

Seasonality of Stock Returns

On average, U.S. mutual fund investors transfer assets from stock to bond funds during winter months and do the opposite in summer. This is the exact opposite of the famous “Sell in May and go away.”

At the end of 2012, the equity portion of mutual funds was 66%, somewhat lower than its 71% average since 1970. The ratio hit a low in the mid to late 1980s, when it was ~ 42%. At the beginning of the 1990s, stocks represented ~ 95% of mutual fund assets; ~ 83% in 2000. 
 

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Value Stocks

Value Stocks

According to finance professors Fama (University of Chicago) and French (Dartmouth College), on average, value stocks have outperformed growth stocks by four percentage points per year since 1926. Historically, value stocks traded at a P/E ratio that was 54% less than growth stocks. Based on recent research from the Leuthold Group, value is now 40% cheaper. 

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Preferred Stocks

Preferred Stocks

A preferred stock is a hybrid security, a cross between a stock and a bond. It pays a dividend that is typically lower than a bond’s interest payments, but higher than the common stock’s dividend. This fixed amount has a higher corporate priority than payment of common stock dividends, but the board of directors can always decide to lower or eliminate the preferred dividend—unlike the corporate promise behind bond interest payments.

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Value Stocks

Avoiding Admired Companies

At the beginning of 2013, Amazon.com emerged as the company with the best reputation among the general U.S. public, according to a Harris Interactive survey of 14,000 randomly selected individuals. Also included in the list were Apple, Disney, and Google. Great companies tend to be overvalued; an extreme example of this is Amazon, which was trading for well over a 200 P/E in late 2012 and had a negative P/E by March 2013 (-9 cents per share).

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Preferred Stocks

Stock Gains From 2008 To 2013

It took the Dow almost exactly four years to go from its bear market low to an all-time record high in early March 2013. The S&P was priced at 16 times operating earnings in March 2013 vs. its long-term P/E average of 18.8 and its 28.4 earnings ratio in 2000 (source: Howard Silverblatt of S&P Dow Jones Indices). Based on the March 2013 U.S. P/E ratio, Ireland, Italy, France, and the UK were trading at a 25% discount.

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Mortgage REITs

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Tax Facts

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TIPS Concerns

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