Weekly Market Review ~ Friday, 04/27/12

Stocks kicked off the week on Monday with renewed fear on European debt and the state of Europe’s economy, as the Dow dropped 100 points. Tuesday was a good day for blue chip stocks, but a poor day for tech stocks, as Apple weighed down the NASDAQ index to give that index its fifth consecutive loss. This downturn in Apple and the NASDAQ was quickly reversed on Wednesday, with an encouraging earnings report by Apple. A reassuring statement by Fed chief Ben Bernanke that interest rates will remain low also gave a boost to the market in general. On Thursday, stocks rose again despite a disappointing US jobs report. Stocks closed the week on Friday with another gain following several solid earnings reports, most notably by Amazon.

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“Stock-Picking Robot” — Really?

A pair of 21-year-old twin brothers (Alexander and Thomas Hunter) from the UK duped thousands of investors in the US into believing that a fictitious “stock-picking robot” could find penny stocks set to surge in price.

According to a lawsuit from the SEC, approximately 75,000 investors paid a total of $1.2 million for a newsletter subscription and home “robot software”.  The Hunter twins used the newsletter and fake software to feed spurious stock tips to unwitting investors in a “pump and dump” scheme.  The Hunters were also paid by companies to tout specific stocks.

The lessons here should be obvious.  Lots of people

  1. Want to get rich quick
  2. Think investing has some magic bullet or secret formula for success
  3. Are essentially and critically uninformed about the markets
  4. Desperately need help with their investing and financial planning

If it sounds too good to be true, it probably is.  If in doubt, seek the expert opinion of a competent, professional, and ethical investment advisor.

 

Weekly Market Review ~ Friday, 04/20/12

The Dow, NASDAQ, and S&P 500 finished with an unusual 1.4% spread on Monday, as the Dow reacted well to a positive retail sales report, while Apple dragged down tech stocks. On Tuesday all the major indexes soared following a successful Spanish bond sale that indicates that the beleaguered European country will not need a bailout. The market gave back some of these gains on Wednesday after earnings reports from tech giants IBM and Intel disappointed investors. On Thursday the downturn continued when US labor, housing, and manufacturing reports did not meet expectations. Stocks wrapped up the week on Friday with another split decision as good earnings reports from GE and Microsoft propelled the Dow upward, while the NASDAQ and S&P 500 lagged.

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Temperament over Intellect

Warren Buffett once said, “The most important quality for an investor is temperament not intellect.”

Investors very often buy at high prices when the market is hot and attractive, and sell at low prices after observing periods of poor performance.

This leads average investors to severely trail both the S&P 500 index and the Barclays Aggregate Bond Index over long time periods.  This is why investors are very often their own worst enemy.

CBS MoneyWatch author Larry Swedroe recommends in a recent article that you ask yourself if you believe that you’re best served by being your own advisor:

  • Do I have the temperament and the emotional discipline needed to adhere to a plan in the face of the many crises I will almost certainly face?
  • Am I confident that I have the fortitude to withstand a severe drop in the value of my portfolio without panicking?
  • Will I be able to re-balance back to my target allocations (keeping my head while most others are losing theirs), buying more stocks when the light at the end of the tunnel seems to be a truck coming the other way?

 

Weekly Market Review ~ Friday, 04/13/12

On Monday, stocks experienced a fourth consecutive day of losses as fall-out from the disappointing US jobs report the previous Friday manifested itself after the market holiday. The decline snowballed on Tuesday, with the Dow sliding over 200 points, as investors wonder how much longer the 2012 rally can last. On Wednesday, the slump finally ended on a very good start to the first quarter earnings season by Alcoa. The market roared back on Thursday on renewed expectations that the Fed might try to stimulate the economy with additional quantitative easing. Stocks closed the week on Friday on a down note with another triple digit loss for the Dow, this decline spurred by reports of a slowing economy in China.

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“Shelf-Space” – Another dirty little secret about big brokerage firms

Cereal companies pay grocery stores to place their products at eye level on the shelves.  Higher visibility leads to higher sales.

Mutual funds do the same thing.  They pay big brokerage firms big money to tout their products.  So when you call up a firm like UBS or Morgan Stanley Smith Barney and ask for an investment recommendation, they have a list of preferred mutual funds that they want you to buy so they can make more money.

These “revenue sharing” payments can be very big revenue sources for brokerage firms.  For example, nearly one-third (33%) of Edwards Jones’ $481.8 million profit in 2011 came from “revenue sharing” fees.  Note that Edwards Jones is forced to disclose more information on sensitive matters like this than its competitors thanks to a 2004 regulatory settlement.

Though “revenue sharing” payments are legal, many critics question if they are ethical since it calls into question whether recommendations are based solely on what’s in the best interest of the client.  Brokerages are not fiduciaries and have no requirement to put client’s interests first.

“It’s an unholy alliance between mutual-fund firms and brokerages to exploit their customers,” says John Freeman, emeritus professor of business and professional ethics at the University of South Carolina Law School.

Investors who want to avoid questionable practices like “shelf space” and “revenue sharing” should seek advice from a fiduciary such as a registered investment advisor.

source:
Wall Street Journal: Brokers Raise Fees, but Not For Investors: Why You Should Care

Weekly Market Review ~ Friday, 04/06/12

The upward trek of the markets continued on Monday, as the Dow logged its highest close since December 2007 on positive manufacturing and employment news. On Tuesday, stocks fell modestly when Fed Chair Bernanke failed to indicate that any economic stimulus was in the works. The US markets followed the European markets down on Wednesday following a disappointing Spanish bond auction. The major indexes ended the holiday-shortened week on Thursday mixed, with the tech heavy NASDAQ recording a gain while most of the other indexes experienced a modest loss. US markets were closed on Friday in observance of Good Friday.

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2011 IRA Contribution Reminder

Here’s an important reminder if you have an individual retirement account (IRA) or are considering opening an IRA.

2011 contributions to your IRA accounts can still be made up through April 17th.

Maximum Annual Contributions (IRAs and Roth IRAs only):

• $5,000 for tax year 2011
• Age 50+: Catch up contributions of an additional $1,000

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