Tag Archives: Morgan Housel

Business, Finance, Occupation & Industry

Most Investors Don't Do Well. Some Do. What Sets Them Apart?

April 27, 2013 Bartle Doo Leave a comment

I shared a depressing chart last week using data from analytics firm Dalbar, showing how individual investors have fared against an index like the S&P 500 :

It’s sad.

But what explains it?

I asked Liz Ann Sonders, chief investment strategist at Charles Schwab, what she made of the data. Here’s what she had to say. (A transcript follows.)

Liz Ann Sonders: “Look, when you look at very generalized statistics on how individual investors have fared in terms of performance compared to either the market overall, or if you look at things like the Dalbar study that compares investors returns themselves in funds versus the returns of the funds themselves, the generalizations taking a mean or an average or a median, doesn’t put the individual investor in great light. It shows underperformance. Not all that different today than five years ago, 10 years ago, 15 years ago.

It’s the reason why looking at what individuals are doing en masse is now a contrarian indicator, was a contrarian indicator 10 years ago, was a contrarian indicator 27 years ago, when I started in the business, so that aspect hasn’t changed. What we have found, and as you said, we have some particularly unique insight into what individual investors are doing, having $2 trillion in client assets by individual investors, is what we find is there is a correlation in terms of returns and success with how disciplined you are around long-term plan and goals.

In many cases, if you have an advised relationship and you are going through an appropriate process of diversification and rebalancing, which is so important, staying disciplined, not reacting to whims or news and the ability to pull the trigger more quickly, but taking a very disciplined approach, the returns for that cohort of investors dramatically outshines the returns for investors who tend to be quicker with the trigger. And you’re right, access to information, the speed with which we get it, and then the ability to trade on that has grown exponentially. It’s just a question of what you do with that information.”

The article Most Investors Don’t Do Well. Some Do. What Sets Them Apart? originally appeared on Fool.com.

Fool contributor Morgan Housel and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

Wall Street: We've Seen It Before, and We'll See It Again

April 27, 2013 Bartle Doo Leave a comment

By Morgan Housel, The Motley Fool

Filed under: Investing

During the financial crisis in 2008, JPMorgan Chase CEO Jamie Dimon’s daughter asked her father what was going on. “Well, it’s something that happens every five to seven years,” he said he told her.

How much truth is there to his statement?

Wall Street has a deep history of boom and bust. Throughout all economic conditions, all political administrations, and all regulatory environments, it finds a way to get itself into trouble. When there’s so much money dangling in your face, otherwise admirable people do stupid things.

Last week I asked David Cowen, CEO of the Museum of American Finance and a financial historian, what he thought of Wall Street‘s boom-bust cycle. Here’s what he had to say. (A transcript follows.)

David Cowen: “There’s an old adage: It’s greed and fear on Wall Street. And we’ve seen the cycle over and over. Here at the museum just last night, we had a play that was based on the events of what was called The Panic of 1857, triggered — the match that set the powder keg off was actually a bank failure, and that bank failure was in large part by embezzlement by their cashier, which is kind of an Enron-Lehman rolled into one. And so no, human nature hasn’t changed so very much. I look at these as cyclical, and we’ve seen it all before and sadly probably will see it again.”

The article Wall Street: We’ve Seen It Before, and We’ll See It Again originally appeared on Fool.com.

Fool contributor Morgan Housel has no position in any stocks mentioned. The Motley Fool owns shares of JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

Joseph Stiglitz on the 1%

April 18, 2013 Bartle Doo Leave a comment

By Morgan Housel, The Motley Fool

Filed under: Investing

A few years ago I wrote about the composition of the 1% — the group of the richest Americans that has become the target and the face of wealth inequality. Only 14%, I showed, were in financial services. Another 31% were executives. The rest — the majority — were engineers, doctors, small-business owners, salesman, teachers, and other professionals that most wouldn’t associate with harming the economy.

So why the bad rap?

I asked Joseph Stiglitz, the Nobel Prize-winning economist who has written extensively about income inequality, in his office at Columbia Business School last week. Have a look (transcript follows):

Stiglitz: The 1% is just a metaphor for saying many of those at the top. I think you have to look at what they’re actually doing. I don’t think anybody begrudges somebody who would have invented the laser, discovered DNA, from becoming wealthy. They’ve made an enormous contribution to our society. The irony is that the guys who made these discoveries are not in that top group. The people really transformed our knowledge base that have transformed our society, are not those who are in that 1%.

So I think, as you say, it’s looking at the people who have actually gotten rich by exercising monopoly, by taking advantage of corporate-governance deficiencies to seize a larger fraction of the corporate pie to get them outsize benefits. That was one of the things that exposed this whole scandal of inequality when the CEOs, particularly the banks, got paid millions and millions of dollars in what they call “performance pay” for bringing the global economy to brink of ruin and bringing their companies to the brink of ruin so they had to be saved by the U.S. Government. How could you call that performance? And yet they walked home with huge paychecks, and ordinary Americans were left unemployed and paying their bills.

The article Joseph Stiglitz on the 1% originally appeared on Fool.com.

Morgan Housel doesn’t own shares in any of the companies mentioned in this article.Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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From: http://www.dailyfinance.com/2013/04/18/joseph-stiglitz-on-the/

Business, Finance, Occupation & Industry

Bond Bubble? Maybe Not. The "Lower and Longer" Argument

April 18, 2013 Bartle Doo Leave a comment

By Morgan Housel, The Motley Fool

Filed under: Investing

Is there a bond bubble? Maybe. Treasury yields are near record lows. The iShares iBoxx High Yield Corporate Bond ETF yields 6.4%. There’s little room for error. The big returns of the past are now almost certainly a thing of the past.

But the word “bubble” can be dangerous. It implies an imminent pop, which is never a sure thing. Investors thought Japanese bonds were in a bubble in the early 1990s. Twenty years later, interest rates are still stuck to the floor.

Last week I asked Charles Schwab chief investment strategist Liz Ann Sonders what she thought of the bond bubble talk. Here’s what she had to say (transcript follows):

Sonders: The view from our fixed-income group has been lower for longer. Yes, you are probably well past the major, major tailwind of a 30-year decline in inflation and interest rates, but that doesn’t necessarily mean it looks like a V on the upside, as long as we have the Fed in the position that it’s in, which is not only keeping rates low on the short end, but buying on the long end and very little reason in the very near term why they should stop that.

And the fact that we’ve got still a very wide output gap; we have very little velocity of money. We don’t have any upward pressure on wages. Those are the types of things you would tend to see kick in first before inflation took hold, which would be the condition under which rates would start to go up, probably more rapidly than what’s built into expectations.

That said, in general, we’re past probably the low, and that fixed-income investors need to be at least mindful of that, and there are certain things they can do within the fixed-income portion of their portfolio, which is a few steps shy of running for the hills because of some view that rates are going to spike from here.

The article Bond Bubble? Maybe Not. The “Lower and Longer” Argument originally appeared on Fool.com.

Fool contributor Morgan Housel has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

From: http://www.dailyfinance.com/2013/04/18/bond-bubble-maybe-not-the-lower-and-longer-argumen/

Business, Finance, Occupation & Industry

Are Dividend Stocks the Market's Riskiest?

April 14, 2013 Bartle Doo Leave a comment

By John Maxfield, The Motley Fool

Filed under: Investing

One way to think about the market is in terms of money flows between assets with different risk characteristics. When times are good, money moves out of bonds, which are perceived as safe because bondholders take priority in liquidation proceeds, and into stocks, which are riskier because their owners are last in line. When times are bad, it’s the opposite.

The same can be said within asset classes as well. Riskier bonds, known as junk bonds, are more popular when the economy is perceived to be safe, while safer stocks (generally those that pay high dividend yields) demand higher premiums when times are tough. With that in mind, it should be no surprise that the latter are trading for higher multiples than ever.

The conversation about a “dividend bubble” began in earnest at the beginning of last year. As my colleague Morgan Housel said in February 2012, “there’s an argument to make that, just as investors ran blindly into subprime bonds five years ago in search of yield, they’re running blindly, carelessly into dividend stocks today.”

Morgan cited a number of examples to support his case. Consolidated Edison , a utility stock that pays one of the best yields on the S&P 500 , had returned 50% in the two preceding years. And shares of Altria were up by roughly the same degree despite a “string of dismal earnings reports as smoking rates decline.”

It wasn’t just market commentators who were thinking along these lines. Here’s a chart from Google showing the popularity of the search term “top dividend stocks.” As you can see, it started to gain traction in the middle of 2007 and has accelerated in popularity since.

So where are we now? Has the bubble popped? Has it deflated? Was it much ado about nothing?

According to Seth Masters, the chief investment officer of Bernstein Global Wealth Management, things have gotten worse. In a recent report from Bloomberg News titled “Desperately Seeking Safety,” Masters argues that the “asset classes investors now consider safe havens — gold, bonds, and dividend-paying stocks — are dangerously overpriced.”

Here’s what he had to say about dividend stocks in particular:

Q: What do you see as the risk to dividend stocks?

A: Many stocks with high dividends don’t have growth potential. Their payout is their primary appeal. Utility stocks, for instance, [are perceived to] have safe dividends. So a lot of people are buying them.

Recently they were trading at a 50% premium to their historical average valuation. That’s their biggest premium ever. Most utilities are heavily leveraged, strictly regulated, and very sensitive to changing energy costs. That doesn’t sound like a safe investment to me. But people perceive them as safe and are giving up some good returns in other places to buy them.

To add substance to this argument, here’s a chart comparing the historical price-to-earnings ratios of some of the more popular dividend-paying stocks on the S&P 500. The valuations for

From: http://www.dailyfinance.com/2013/04/14/are-dividend-stocks-finally-too-expensive/

Business, Finance, Occupation & Industry

Could This Risk "Spoil the Party" on the Stock Market?

April 11, 2013 Bartle Doo Leave a comment

By Matt Koppenheffer, The Motley Fool

Filed under: Investing

The StressTest column appears every Thursday on Fool.com. Check back weekly and follow @TMFStressTest on Twitter.

Who would have thought that profits could be putting fear in the hearts of market watchers?

Just yesterday, Robert Lenzner at Forbes wrote that the current rate of corporate profits “will eventually revert to the mean, spoiling the party.” Lenzner isn’t alone. And many of those not focused on mean-reverting corporate profits torpedoing the markets and economy are bemoaning the fact that wages haven’t kept up with the jump in profits. On Fool.com, Morgan Housel took a look at just that earlier this week.

On its face, the case for high profits being worrisome makes sense. Based on numbers from the Federal Reserve, corporate profits were 11.2% of U.S. GDP as of October 2012. That compares to an average of 6.1% going back to 1950. Some of that may reflect a shift in dominant industries — today, manufacturing companies account for a lower share of the economy while financial and service businesses have a higher one. But considering those numbers, it seems almost silly to think that the corporate profit share won’t fall in the years ahead.

So let’s assume for a moment that it’s not a question of whether corporate profits will fall — let’s just assume they will. Now we can focus on the more important question for investors: Would a fall in corporate profits hurt the stock market?

Let’s consider some more numbers.

Source: Federal Reserve and YahooFinance. Analysis performed with Statwing.

If the plots look random, it’s because they are. Based on this data — which goes back to 1950 — there’s no statistically significant relationship between past corporate profit levels and the performance of the S&P 500 over the next year. But a year is like the blink of an eye on the stock market. Let’s take a look at forward five-year S&P 500 performance.

Source: Federal Reserve and YahooFinance. Analysis performed with Statwing.

This time, the data looks like it has more going on. As the Statwing analysis describes it, the two sets of data are “weakly negatively correlated.” In plain English, the higher corporate profits are, the worse the S&P 500 tends to perform over the following five years.

Let’s extend it out to 10 years.

Source: Federal Reserve and YahooFinance. Analysis performed with Statwing.

Once again, Statwing tells us that there is a weak, but significant negative correlation between corporate profit levels and the performance of the S&P 500 over the next decade. However, when we move out to 10 years, the relationship actually weakens, and starting corporate profit levels could be said to “explain” less of the change in the stock market.

So if we go back to the logical story that we started with — that when corporate profits are high, they’re in a position to fall, and therefore will

From: http://www.dailyfinance.com/2013/04/11/could-this-risk-spoil-the-party-on-the-stock-marke/

Business, Finance, Occupation & Industry

Banker Pay Coming Down to Earth

April 10, 2013 Bartle Doo Leave a comment

By Morgan Housel, The Motley Fool

Filed under: Investing

Investment banking is hard. You put in insane hours. You get screamed at. Your life is miserable.

But you make a lot of money. An absurd amount of money. Average pay at a bank like Goldman Sachs can exceed half a million dollars a year.

But that’s starting to change. Five years after the financial crisis, banker bonuses are starting to decline. Given new regulations, the change might be a permanent shift, rather than a cyclical blip.

In this video, Fool analysts Morgan Housel and Matt Koppenheffer discuss what pay falling down to Earth means for the industry.

With big finance firms still trading at deep discounts to their historic norms, investors everywhere are wondering if this is the new normal, or if finance stocks are a screaming buy today. The answer depends on the company, so to help figure out whether Goldman Sachs is a buy today, I invite you to read our premium research report on the company today. Click here now for instant access!

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Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

Conversations With a Bear

April 8, 2013 Bartle Doo Leave a comment

By Morgan Housel, The Motley Fool

Filed under: Investing

“Stocks Likely To Crater From Here,” read the subject line of an email that landed in my inbox last week.

“Sequestration cuts, weakening GDP growth, higher taxes and high gasoline prices are all but a few reasons why author and economic researcher Chris Martenson PH.D foresees the stock market likely to plummet within the coming months,” it warned.

I usually ignore such hyper-specific emails, but I gave this one a look for one reason: I feel better about the economy now than I have in a while, and in an attempt to avoid confirmation bias, it’s always best to bounce your thoughts off someone who disagrees with you.

So Chris and I exchanged a back-and-forth chat about the economy and investments. Here’s the transcript, condensed for clarity.

Morgan Housel: You cite an increase in taxes and gas prices as a reason you expect stocks to plummet. But the last time we raised taxes in the early 1990s, stocks surged. Same with tax hikes in the 1950s. And gas prices are up 40% over the last three years, yet stocks are up by more than a third during that time. I’m not saying it’s causation; just that the relationship is much more complicated than we often think. I just don’t see the evidence that higher taxes or higher gas prices automatically lead to poor stock returns. (And for what it’s worth, gas prices have been falling for a month now).

Chris Martenson: My thinking here is that stocks do respond poorly to are falling earnings and recessions are a powerful driver for falling earnings. Rising energy prices are well correlated with recessions and so I see high gasoline prices as a headwind to economic growth. The US economy is barely above stall speed when measured in terms of real GDP, and is a tick below the 3.7% nominal growth threshold that has been breached in every recession stretching back to 1980 (and at no other times, I should note). It is in the context of a weak economy that I wish to observe that the recent tax hikes and spending cuts of the US government provide yet more recessionary weight to the current environment.

Morgan: So the call, then, is for a looming outright recession? I agree that recession would be bad for stocks, of course. And while you can never rule out the possibility of a recession — we’re very bad at predicting them — the negatives of higher energy prices and tax hikes can be countered by a number of things going right in the economy. Housing starts are rising at an annual rate of more than 25%, and will likely keep rising given low inventory and demographic trends. Household debt payments as a share of income are at a three-decade low, and there’s evidence that consumer deleveraging is now complete. Energy production is booming. The near-stagnant GDP growth in the fourth quarter was almost entirely due to a big pullback in defense spending, which itself was the echo …read more

Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

Why Inflation Hasn't Spiraled Out of Control

April 8, 2013 Bartle Doo Leave a comment

By Morgan Housel, The Motley Fool

Filed under: Investing

“Economic medicine that was previously meted out by the cupful has recently been dispensed by the barrel. These once-unthinkable dosages will almost certainly bring on unwelcome aftereffects. Their precise nature is anyone’s guess, though one likely consequence is an onslaught of inflation.”
—Warren Buffett, 2009.

As the Federal Reserve double-, triple-, and quadruple-downed on monetary policy starting in 2008, the common-sense response was to predict that booming inflation was right around the corner.

But they warned it would come in 2009, and it didn’t. They warned it would come in 2010, and it didn’t. The same goes for 2011 and 2012.

The Consumer Price Index has increased at an average annual rate of 1.87% since 2008. That’s almost half the average post-World War II rate of change. Privately measured inflation gauges show roughly the same thing.

What happened?

I recently sat down with Hoover Institute economist Russ Roberts. He took a stab at the inflation conundrum. Have a look.

The Motley Fool’s chief investment officer has selected his No. 1 stock for the next year. Find out which stock it is in the brand-new free report “The Motley Fool’s Top Stock for 2013.” Just click here to access the report and find out the name of this under-the-radar company.

The article Why Inflation Hasn’t Spiraled Out of Control originally appeared on Fool.com.

Morgan Housel doesn’t own shares in any of the companies mentioned in this article. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

The Fight Between Wages and Profits: When Will It End?

April 8, 2013 Bartle Doo Leave a comment

By Morgan Housel, The Motley Fool

Filed under: Investing

Wages and salaries have been growing slower than the overall economy for decades. After-tax profits have been growing much faster than the economy.

It’s time for an update of a chart we’ve posted before:

Source: Federal Reserve, Bureau of Labor Statistics, Bureau of Economic Analysis.

The drift between these two adds up to an enormous sum. Peter Orszag wrote last year: “If labor compensation hadn’t fallen so much as a share of national income, American workers would be enjoying about $750 billion more in take-home pay.”

Now, this chart isn’t as simple as it looks. Part of the reason wages take up a smaller share of the economy is because benefits like health insurance take up a larger share of workers’ total compensation. And part of the reason corporate profits have grown as a share of the economy is because of a shift from industrial-commodity corporations to technology firms that naturally have higher margins.

But there is no doubt that part of the swing between wages and profits is explained by one growing at the expense of the other. This is natural — we’ve been through two other cycles since 1900 — but I wonder how long the current cycle can last. Take this recent story about Wal-Mart :

Walmart, the nation’s largest retailer and grocer, has cut so many employees that it no longer has enough workers to stock its shelves properly, according to some employees and industry analysts. Internal notes from a March meeting of top Walmart managers show the company grappling with low customer confidence in its produce and poor quality. “Lose Trust,” reads one note, “Don’t have items they are looking for — can’t find it.”

There comes a point where it is in capital’s best interest to increase labor’s share of output. If Wal-Mart is any indication, we’re probably pretty close to that point.

The article The Fight Between Wages and Profits: When Will It End? originally appeared on Fool.com.

Morgan Housel has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

Apple and Innovation

April 3, 2013 Bartle Doo Leave a comment

By Morgan Housel, The Motley Fool

Filed under: Investing

Apple is one of the most innovative companies to ever exist. That has been a blessing for shareholders, who have enjoyed a 6,000% gain over the last decade.

But what does the need to innovate mean going forward? The answer may not be a clear as you think. In this video, Fool analysts Morgan Housel and Austin Smith discuss the difference between a company that constantly needs to innovate versus those with boring products that rarely change.

There’s no doubt that Apple is at the center of technology’s largest revolution ever, and that longtime shareholders have been handsomely rewarded. However, there is a debate raging as to whether Apple remains a buy. The Motley Fool’s senior technology analyst Eric Bleeker is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.

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Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

Scary Numbers From For-Profit Education

April 3, 2013 Bartle Doo Leave a comment

By Morgan Housel and Austin Smith, The Motley Fool

Filed under: Investing

We’ve all heard about the student loan crises. The numbers are surging out of control. Is it the next bubble? Does it make going to college not worth it?

Like most things in the economy, the answer is: It’s complicated. In this video, Fool analysts Morgan Housel and Austin Smith discuss some unique numbers about student loans, and what they might mean for the for-profit education industry.

The Motley Fool’s chief investment officer has selected his No. 1 stock for the next year. Find out which stock it is in the brand-new free report: “The Motley Fool’s Top Stock for 2013.” Just click here to access the report and find out the name of this under-the-radar company.

The article Scary Numbers From For-Profit Education originally appeared on Fool.com.

Morgan Housel has no position in any stocks mentioned. Austin Smith has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Business, Finance, Occupation & Industry

Russ Roberts: Learning from the Financial Crisis

April 2, 2013 Bartle Doo Leave a comment

By Morgan Housel, The Motley Fool

Filed under: Investing

Never let a good crisis go to waste, the saying goes. The only thing worse than suffering through a financial crisis is suffering through one and not learning anything from it.

What have we learned from the last five years? I recently sat down with Hoover Institute economist Russ Roberts, who took a stab at the question. Have a look:

The article Russ Roberts: Learning from the Financial Crisis originally appeared on Fool.com.

Morgan Housel doesn’t own shares in any of the companies mentioned in this article. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Winning Stocks: Rarer Than You Might Think

April 1, 2013 Bartle Doo Leave a comment

By Morgan Housel, The Motley Fool

Filed under: Investing

Can you pick winning stocks? Yes. Many have done it.

But winning stocks may be rarer than some think, especially over long periods of time.

In this video, Fool analysts Matt Koppenheffer and Morgan Housel share some data showing the returns of 3,000 stocks over a 28-year period. There were plenty of winners — but a whole lot of utter losers, too. Have a look:

The article Winning Stocks: Rarer Than You Might Think originally appeared on Fool.com.

Morgan Housel owns shares of Altria Group. The Motley Fool recommends Apple and Coca-Cola. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Irony of the Cyprus Bailout

April 1, 2013 Bartle Doo Leave a comment

By Morgan Housel, The Motley Fool

Filed under: Investing

The nation of Cyprus saw its banking sector come crashing down over the last two weeks. The final consequences are still unknown, but the episode is sure to leave its economy in ruin.

There is a tremendous amount to learn from the crash. One lesson is the value and accuracy of stress tests that regulators impose on banks.

In this video, Fool analysts Matt Koppenheffer and Morgan Housel show how 2011’s stress tests of European banks completely backfired.

Many investors are scared about investing in big banking stocks after the crash, but the sector has one notable stand out. In a sea of mismanaged and dangerous peers, it rises above as “The Only Big Bank Built to Last.” You can uncover the top pick that Warren Buffett loves in The Motley Fool’s new report. It’s free, so click here to access it now.

The article Irony of the Cyprus Bailout originally appeared on Fool.com.

Morgan Housel has no position in any stocks mentioned. The Motley Fool recommends Wells Fargo. The Motley Fool owns shares of Bank of America and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

Markets Hit All-Time Highs. Is Now the Time to Sell?

March 29, 2013 Bartle Doo Leave a comment

By Matt Thalman, The Motley Fool

Filed under: Investing

Yesterday, the S&P 500 index managed to set a new record. The previous record closing price for the index was set in 2007 at 1,565, but when the closing bell rang yesterday, the S&P 500 had hit 1,569. Just a few weeks ago, the Dow Jones Industrial Average broke its previously set record high, and has since been setting new ones.

A few media outlets have recently been telling investors that even though the Dow and S&P 500 are trading at all-time highs, they are still below their records when inflation is calculated. My Fool colleague Morgan Housel recently demonstrated how these claims are, in fact, completely incorrect. Well, perhaps not completely but they are still false. He explains that when adjusted for inflation, the Dow is still below its record set in 2007. But when you add the dividends that companies have paid since then, the 2007 record doesn’t stand a chance.

So while the headlines are telling you that the markets are now at their all-time highs, that isn’t completely true. And while we are on what’s true and what isn’t, when you hear that the markets are overbought and are due for a pullback, well, that’s not necessarily true, either.

If we look at what has truly caused the Dow and the S&P 500 to move higher, we must look at what the indexes themselves are made of — i.e., individual companies. The Dow consists of 30 of them. The index moves higher when the shares prices of those companies increase, but as the name says, it’s an average. If 10 companies’ shares prices move lower but those of the other 20 move higher, the index will move higher. While not every stock in the Dow is evenly weighted, it usually works out that the majority rules.

So even though the Dow, as a collective whole of 30 different stocks, is at its all-time high, that doesn’t necessarily mean all of its components are at their all-time highs or, better yet, that their shares prices can’t go any higher.

In the short term, share prices are affected by a number of factors: the weather, breaking news, legal issues, mergers and acquisitions, or even just rumors. But, in the long run, earnings are king. A company’s past earnings and future projected earnings rule and dictate shares prices on a year-to-year basis. Therefore, when earnings go higher, share prices move higher. But as we have seen before with the dot-com bust, if investors believe future earnings will be higher than they are today, shares prices also rise.

What’s this all mean?
Now that the Dow and S&P 500 are at their all-time highs, the only way they can move higher is if the share prices of their underlying components move higher.

Many of my colleagues here at the Fool and I believe this can and will happen. John Maxfield recently wrote about why he believes shares of Bank of America will <a target=_blank …read more
Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

What Happens to Stocks When the Fed Bids Farewell?

March 28, 2013 Bartle Doo Leave a comment

By Morgan Housel and Austin Smith, The Motley Fool

Filed under: Investing

Last week, the Federal Reserve reassured investors that it will keep its foot on the monetary gas pedal. This is good news for stocks — for the time being.

But what happens when the Fed decides to let up, reining in its super-loose money policies of the last five years?

investors naturally fear a big market pullback. And that may be what occurs. But in this video, Fool analysts Morgan Housel and Austin Smith discuss the other side of the story and why an end to easy money doesn’t necessarily mean the end of stocks.

The article What Happens to Stocks When the Fed Bids Farewell? originally appeared on Fool.com.

Fool contributor Morgan Housel owns shares of Altria Group, Procter & Gamble, and Philip Morris International. Austin Smith owns shares of Philip Morris International and Colgate-Palmolive. The Motley Fool recommends Procter & Gamble. The Motley Fool owns shares of Philip Morris International. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Business, Finance, Occupation & Industry

As Europe Struggles, Japan Threatens to Erupt

March 28, 2013 Bartle Doo Leave a comment

By David Lee Smith, The Motley Fool

Filed under: Investing

My Foolish colleague Morgan Housel began an article a few days ago by noting that, “Poor Cyprus is in terrible shape.” The tiny Mediterranean nation virtually crept into that forlorn condition before most of us were aware of its difficulties. Of course, we’d known about the withering economies of Greece, Spain, and Italy. But now, unbeknownst to many, Japan, the world’s third-largest economy, may also be headed for what would be a far more resounding crash.

Some Fools may recall the Japanese “bubble economy,” which, before it came to an abrupt halt in 1991, was characterized by nosebleed values on real estate and stock prices. But, since that time, the country’s economic circumstances have continued to wweaken.

Not pretty numbers
Today, Japan‘s government debt to GDP is a whopping and globe-topping 245%. Beyond that, its total debt to GDP is about 500%, while the Japanese government spends at a rate of 2000% of its revenues. As a result, evenamid at prevailing rock-bottom rates, its interest costs on the government‘s portion of its debt runs to nearly 25% of the same government‘s revenue. Largely as a result, from July through September, the country’s economy was shrinking at an annualized rate of about 3.5%.

But that may be only a temporary phenomenon. Newly reinstated Prime Minister Shinzo Abe — who in the past had held the same post under the auspices of the Liberal Democratic Party and was returned by the electorate in December — apparently intends to undertake the quantitative easing (QE) approach that has become the apparent elixir for sluggish economies, whether in Europe or the U.S. In addition tied to an avowed object of turning Japan‘s deflationary economy into one that sports about a 2% growth rate. Further, “Abenomics” also includes “structural reforms,” including a round of deregulation.

Another prescription from Abe’s crew clearly involves letting the yen slide. Indeed, the currency has been lowered by 20% during just the past four months. That decline has essentially occurred under the cover of darkness, without generating any real attention. Its clear intent is to benefit the likes of the Japanese automobile manufacturers and other areas of industry. (This, despite Toyota‘s having recaptured the automotive world’s top spot from General Motors in 2012, while rival Honda recorded a 24% hike in U.S. sales for the year.)

Predicting problems
the face of the country’s dicey economics, however, and despite the ministrations of Abe and his minions, there are numerous Asia-watchers who have become convinced that an economic tumble for Japan is inevitable and possibly imminent. For instance, longtime Japan observer and Asian securities specialist James Gruber maintains that, a yield that expanded to 2% would result in the interest portion of the government‘s debt absorbing a clearly unsustainable 80% of its total revenues.

Also, the Dallas-based founder of Hayman Capital Management, Kyle Bass — one of the early seers of the …read more
Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

What Made AIG Great Before It Collapsed

March 27, 2013 Bartle Doo Leave a comment

By Morgan Housel, The Motley Fool

Filed under: Investing

For many, the history of AIG starts in September, 2008, when it collapsed and was bailed out by the U.S. government.

That’s unfortunate, because the company has a deep history spanning nearly a century. Long before it was bailed out, and long before it bet heavily on risky mortgage derivatives, it was the one of the most successful and admired insurance companies in the world.

I recently interviewed former AIG chairman and CEO Hank Greenberg, who ran the company for almost 50 years before retiring in 2005. I asked him a simple question: What made AIG great during its heyday? Here’s what he had to say (transcript follows):

Morgan Housel: What I liked about the book is that it spent most of the time on the early days and the growth of AIG during its heyday. I think what’s unfortunate is that for a lot of Americans, the history of AIG begins in September 2008.

Hank Greenberg: That’s exactly right.

Morgan Housel: What was AIG‘s key to success during its heyday?

Hank: Many things. First of all, we had a culture that was quite unique, and I think a lot of it was also when we started. Starr died in 1968. I became the head of the company in 67, and the people around us then, most of us at the very senior level were veterans, had been officers of the military, so there was a separate culture that was just unique, almost a military-like culture of discipline.

We attracted the best and the brightest, people who could live with a very high-powered environment. We were totally committed to building a great company, and we did. It was the largest insurance company in history. The largest in history, in 130-odd countries; it didn’t happen by accident. The planning and the execution were great.

Morgan Housel: You talk a lot about the culture of success. What other publicly traded companies today do you admire, that are doing things right?

Hank Greenberg: I think one of the companies now public was a part of AIG called AIA, in Hong Kong. Its market value today is almost that of AIG. It was wholly owned by AIG. I just had lunch with the guy running it, the CEO, yesterday. The company is a replica of what AIG was.

For more on AIG
At the end of last year, AIG was the favorite stock among hedge fund managers. Have they identified the next big multi-bagger, or are the risks facing the insurance giant still too great? In The Motley Fool’s premium report on AIG, Financials Bureau Chief Matt Koppenheffer breaks down the key issues that you need to know about if you want to successfully invest in this stock. Simply click here now to claim your copy, and you’ll also receive a full year of key updates and expert analysis as news continues to develop.

Business, Finance, Occupation & Industry

Home Prices Send Stocks Higher Despite Other Ominous Signs

March 26, 2013 Bartle Doo Leave a comment

By John Maxfield, The Motley Fool

Filed under: Investing

Blue-chip stocks are considerably higher today after data showed that home prices are continuing their upward ascent. According to Standard & Poor’s Case-Shiller home price index, prices increased in January by 8.1% on a year-over-year basis. Economists polled by Thomson Reuters had forecast a rise of 7.9%. On the heels of this, the Dow Jones Industrial Average is up by 92 points, or 0.64%, with roughly an hour left in the trading session.

The news about home prices came amid a flurry of economic reports. Data released from the Department of Commerce today also showed that sales of new homes fell 4.6% last month to a seasonally adjusted 411,000. Economists had predicted a rate of 415,000. And in the same report, the number of new homes listed for sale increased to 152,000 at the end of February. That is the highest figure since 2011.

Shares of homebuilders are nevertheless lower. While prices are up, this is likely a reflection of the slight miss on new-home sales. Hovnanian is faring the worst, down 3% at the time of writing, followed by PulteGroup, KB Homes, and Toll Brothers, all of which are off by less than 1%.

Separately, a press release from the Conference Board, a private research group, suggests that confidence among U.S. consumers is waning. The firm’s consumer sentiment index declined to 59.7 in March, down from a revised reading of 68 in February. Economists surveyed by Bloomberg had forecast a reading of 67.5.

According to Lynn Franco, the group’s director of economic indicators: “The loss of confidence, particularly expectations, mirrors the losses experienced this past December and January. The recent sequester has created uncertainty regarding the economic outlook and as a result, consumers are less confident.”

Needless to say, the news isn’t helping the Dow’s largest retail stock, Wal-Mart , which is down by 0.2% in afternoon trading. Paradoxically, however, as my colleague Morgan Housel has noted, there seems to be a loose inverse relationship between the strength of the overall economy and Wal-Mart’s same-store sales. If things continue to deteriorate, in turn, that could actually bode well for the retail giant.

Finally, orders for durable goods rose 5.7% last month. This was the highest level since September, and it follows a 3.8% drop the prior month, according to the Department of Commerce. As my colleague Dan Dzombak noted, there was particular strength in the transportation market, particularly with regard to aircraft, “where new orders jumped by 22%.”

With this in mind, it should be no surprise that shares of Boeing are soaring today. Additionally, as fellow Fool Dan Carroll observed, the aerospace company’s flagship 787 Dreamliner successfully completed a two-hour test flight to assess changes made to its battery. The state-of-the-art plane has been grounded since experiencing trouble with the batteries earlier this year.

Want to learn more about Boeing?
Boeing is a major player in a multitrillion-dollar market in which the opportunities are …read more
Source: FULL ARTICLE at DailyFinance

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Irony of the Cyprus Bailout

Markets Hit All-Time Highs. Is Now the Time to Sell?

What Happens to Stocks When the Fed Bids Farewell?

As Europe Struggles, Japan Threatens to Erupt

What Made AIG Great Before It Collapsed

Home Prices Send Stocks Higher Despite Other Ominous Signs

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