4
Sep
2015
Oil as an Inflation Hedge
Watching the bottom fall out for oil prices is really one of the most dramatic things that I’ve witnessed in several years. Thankfully, it hasn’t had too much direct impact on us because we don’t have straight exposure to commodities, click here for the details on why we’ve avoided commodities). Of course, we’re all affected by the price drop. The good news is easy to remember because I get a reminder every… Read More
3
Sep
2015
The Chart That Made Me Laugh Out Loud
I think you know by now that I love charts. I am definitely not saying that I am a chartist – I don’t think I have ever made an investment decision for me or anyone else based on a chart. I simply think that if a picture tells a million words then a chart must at least tell 1,000 (roughly matching my wordcount) When I saw a blog titled ‘econompic,’… Read More
2
Sep
2015
Downside Protection That Doesn’t Protect
After reading my article last week (that can be found here) that discussed how we use limit orders to protect us from wild price fluctuations (among other reasons), one of my favorite readers wanted to know why we don’t use stop-loss orders. A stop-loss order is different from a market order, which says ‘do my trade at any price’ and a limit order, which says ‘do my order at a… Read More
1
Sep
2015
Deconstructing the Dow Jones Industrial Average
In last week’s market turbulence when the Dow Jones Industrial Average (DJIA) fell by 1,100 points in a single day, I had to talk about something that I don’t like talking about: the DJIA itself. For the most part, I’m able to avoid talking about the DJIA, which is nice, because I think the index is pretty much an almost worthless relic of history. That said, when markets are volatile and… Read More
31
Aug
2015
Stocks and the Real Economy
One of the interesting comments that I read in the early part of last week when markets were falling was that financial markets were doing poorly while the real economy was doing reasonably well. Over the last five years, I’ve heard people say countless times that we’ve had a nice recovery in financial assets while the real economy has sputtered along at growth rates well below our historical long-term trend… Read More
28
Aug
2015
When Trading Goes Haywire
In Tuesday’s Daily Insights, I described trading on Monday as chaotic. Not only were stocks down sharply, and volume heavy (it was the second most active trading day in history with $630 billion in stocks traded) but many stocks behaved erratically and a number of exchange traded fund (ETFs) prices became wildly disconnected from the market value of their holdings. A quick primer: ETFs are like mutual funds in that… Read More
27
Aug
2015
Are Stocks Cheap Now?
I thought it would be interesting to see how the market correction this month impacted long-term market valuations, most notably, the Shiller PE ratio. Unlike a standard PE ratio, the Shiller PE ratio compares the current market price to the average inflation-adjusted earnings for the previous 10-years. The chart below shows the Shiller PE ratio (in blue) back to 1926. The solid orange line depicts the average Shiller PE ratio… Read More
26
Aug
2015
The Biggest Implication of the Market Stress
In the past few days, I’ve focused on the fact that corrections like this are totally normal and entirely fit within the financial plans that we create and that we can expect more volatility in the short run but have no new expectations about returns. Today I want to focus on what is probably the most impactful implication of the current stock market rout, which is, in my opinion, the… Read More
25
Aug
2015
Dealing with the Market Rout
Despite the frenetic trading in the markets yesterday, I was heartened as I talked and emailed with clients who seemed largely unfazed by the steep selloff over the last week. Not only was no one panicking, a handful of clients (not just mine, but for the firm), sent in new money to capitalize on lower prices while a number simply wanted to rebalance their existing assets, which at this point… Read More
24
Aug
2015
This is Investing, So Stick With It
Part of what made last week’s market selloff particularly unsettling was the speed of the decline. So far this year, stocks had been relatively quiet. For example, the S&P 500 had stayed within a range of minus three percent back in January to plus four percent in July. Then, all of a sudden, stocks fell from the top of that range to the bottom over the course of four days… Read More