These 16 golden rules for investing came from a super investor, Walter Scholoss. The full article is posted on GuruFocus.
1. Price is the most important factor to use in relation to value
2. Try to establish the value of the company. Remember that a share of stock represents a part of a business and is not just a piece of paper.
3. Use book value as a starting point to try and establish the value of the enterprise. Be sure that debt does not equal 100% of the equity. (Capital and surplus for the common stock).
4. Have patience. Stocks don’t go up immediately.
5. Don’t buy on tips or for a quick move. Let the professionals do that, if they can. Don’t sell on bad news.
6. Don’t be afraid to be a loner but be sure that you are correct in your judgment. You can’t be 100% certain but try to look for the weaknesses in your thinking. Buy on a scale down and sell on a scale up.
7. Have the courage of your convictions once you have made a decision.
8. Have a philosophy of investment and try to follow it. The above is a way that I’ve found successful.
9. Don’t be in too much of a hurry to see. If the stock reaches a price that you think is a fair one, then you can sell but often because a stock goes up say 50%, people say sell it and button up your profit. Before selling try to reevaluate the company again and see where the stock sells in relation to its book value. Be aware of the level of the stock market. Are yields low and P-E rations high. If the stock market historically high. Are people very optimistic etc?
10. When buying a stock, I find it heldful to buy near the low of the past few years. A stock may go as high as 125 and then decline to 60 and you think it attractive. 3 yeas before the stock sold at 20 which shows that there is some vulnerability in it.
11. Try to buy assets at a discount than to buy earnings. Earning can change dramatically in a short time. Usually assets change slowly. One has to know much more about a company if one buys earnings.
12. Listen to suggestions from people you respect. This doesn’t mean you have to accept them. Remember it’s your money and generally it is harder to keep money than to make it. Once you lose a lot of money, it is hard to make it back.
13. Try not to let your emotions affect your judgment. Fear and greed are probably the worst emotions to have inconnection with purchase and sale of stocks.
14. Remember the work compounding. For example, if you can make 12% a year and reinvest the money back, you will double your money in 6 yrs, taxes excluded. Remember the rule of 72. Your rate of return into 72 will tell you the number of years to double your money.
15. Prefer stock over bonds. Bonds will limit your gains and inflation will reduce your purchasing power.
16. Be careful of leverage. It can go against you.
26.10.09
16.10.09
Index Investing: Track the Market with Passive Strategy
More and more institutional investors, especially pension funds, are applying index-investing strategy by shifting their assets from active managers to index funds.
SmartInMoney reported, there are four major attractions of indexing that motivate investors to track market performance, rather than try to outperform it.
1. They offer a remarkably simple, convenient way to create a diversified portfolio.
2. Index funds typically cost less to manage than actively managed funds.
3. Their performance track record has been impressive, even during bear markets.
4. Index funds are fully invested strategy that keeps investor staying in the game during market recover
Simple
Indexing is a very simple way of gaining exposure to an investment style or the broad market. Index funds can help investors to build a portfolio that's appropriately diversified to meet investors’ goals, time horizon, and tolerance for risk in a convenient way.
Low Cost
Index funds’ main advantage is lower cost than investors would get from an actively managed mutual fund. Index funds win in all three components of investment cost.
Index funds charge low expense ratio, which is the cost of managing the fund. An average non-index fund has an expense ratio of around 1.5%; whereas many index funds have an expense ratio somewhere between 0.15% to 0.5%. Index funds are not actively managed; they are managed largely using computer programs. There are no expensive analysts required to try to figure out what bets to take.
Index funds transaction costs are generally much lower. The costs are incurred as the portfolio manager is managing the portfolio. Indexing is a very low-turnover strategy, relatively low compared to active management. While active strategy involves relatively frequent buying and selling securities, index fund managers only need to maintain the appropriate weightings to match the index performance; the technique is known as passive management.
The third cost is associated with taxes, in the form of capital gains or taxes on dividends. Passive management generates realized capital gains from trading far less frequently than does active management. Consequently, more tax payments could be either deferred of avoided entirely.
What matters to investors are after-cost returns. A fund's return is the total return of the portfolio minus the fees an investor pays for the investment costs. If a fund charges 1.5%, then the portfolio manager have to outperform the fund’s benchmark by that amount just to be even. Anything less, and the fund's returns would lag its benchmark. Studies reveal main culprit for the failure of actively managed funds to beat the indexing is the high costs that they charge. The more you trade, the less you earn, because management fee, transaction costs, taxes and bad decisions always kill returns
Hard-to-Beat Performance
Historically, index funds have performed very competitively against actively managed funds, and frequently outperforming a majority of active funds whether it's a shorter time period, like a year, three years, five years, or extending out ten years.
Over the year 2008, which was a very difficult year in the marketplace, index funds still outperformed a majority of the actively managed portfolios. Over the same period of time, index fund performance was very competitive against the active investments in different segments within the marketplace. In the nine Morningstar "style boxes," such as large-cap value or large-cap growth, indexing outperformed active managers in three of those, according to Gus Sauter, Vanguard's chief investment officer. It underperformed in three, and matched the active managers in three.
Over longer time periods, index funds provided even more competitive performance because that's where the costs of active management get compounded over time. So investors tend to find that over a 10-year (or more) time horizons, most indexes have outperformed the active investments.
Recent studies provided more evidence that the failure of active management in beating their benchmark index is replicated across almost all categories, not only U.S. stock funds but also bond funds and even emerging-markets funds. What's more, a new study found that it is very hard, if not impossible, to justify active management for most individual, taxable investors over a long term. (Detail findings of the studies are elaborated in the "Index Investing Supremacy")
Investing in an index fund doesn't guarantee that you'll never lose money. Index funds will decline in a bear market and up in a bull market, right along with the market. Investors should really think long-term because indexing is a great way to capture the long-term returns of the marketplace with its low-cost benefit. If investors get nervous during a downturn and sell, they’ll probably miss the recovery.
Fully Invested
Index investing can be a great way to capture the typically fast burst that a market experiences when it's making the shift from a bear market to a bull market. A fully invested strategy of index investing positions investors very well to benefit from the large rate of return during the market recovery. It's designed to perform right in line with the market as it goes up. In the last five or six bear markets, particularly the very steep bear markets, the market typically had a very large increase in the first 12 months coming out of a bear market (read "One year after the bear").
Market just witnessed that after months of the most recent cruel bear market, which bottomed in March, the stock markets closed the third quarter ending Sept. 30. 2009 with huge gain and the Dow Jones Industrial Average reclaimed the 10,000 mark on Oct. 14, 2009.
As a bear market turns into a bull market, active managers may suffer from a couple of problems as a bear market turns into a bull market. First, the active managers tend to hold the most cash near market bottoms. Because of the cash drag in an actively managed portfolio, it won't fully benefit in the rebound.
SmartInMoney reported, there are four major attractions of indexing that motivate investors to track market performance, rather than try to outperform it.
1. They offer a remarkably simple, convenient way to create a diversified portfolio.
2. Index funds typically cost less to manage than actively managed funds.
3. Their performance track record has been impressive, even during bear markets.
4. Index funds are fully invested strategy that keeps investor staying in the game during market recover
Simple
Indexing is a very simple way of gaining exposure to an investment style or the broad market. Index funds can help investors to build a portfolio that's appropriately diversified to meet investors’ goals, time horizon, and tolerance for risk in a convenient way.
Low Cost
Index funds’ main advantage is lower cost than investors would get from an actively managed mutual fund. Index funds win in all three components of investment cost.
Index funds charge low expense ratio, which is the cost of managing the fund. An average non-index fund has an expense ratio of around 1.5%; whereas many index funds have an expense ratio somewhere between 0.15% to 0.5%. Index funds are not actively managed; they are managed largely using computer programs. There are no expensive analysts required to try to figure out what bets to take.
Index funds transaction costs are generally much lower. The costs are incurred as the portfolio manager is managing the portfolio. Indexing is a very low-turnover strategy, relatively low compared to active management. While active strategy involves relatively frequent buying and selling securities, index fund managers only need to maintain the appropriate weightings to match the index performance; the technique is known as passive management.
The third cost is associated with taxes, in the form of capital gains or taxes on dividends. Passive management generates realized capital gains from trading far less frequently than does active management. Consequently, more tax payments could be either deferred of avoided entirely.
What matters to investors are after-cost returns. A fund's return is the total return of the portfolio minus the fees an investor pays for the investment costs. If a fund charges 1.5%, then the portfolio manager have to outperform the fund’s benchmark by that amount just to be even. Anything less, and the fund's returns would lag its benchmark. Studies reveal main culprit for the failure of actively managed funds to beat the indexing is the high costs that they charge. The more you trade, the less you earn, because management fee, transaction costs, taxes and bad decisions always kill returns
Hard-to-Beat Performance
Historically, index funds have performed very competitively against actively managed funds, and frequently outperforming a majority of active funds whether it's a shorter time period, like a year, three years, five years, or extending out ten years.
Over the year 2008, which was a very difficult year in the marketplace, index funds still outperformed a majority of the actively managed portfolios. Over the same period of time, index fund performance was very competitive against the active investments in different segments within the marketplace. In the nine Morningstar "style boxes," such as large-cap value or large-cap growth, indexing outperformed active managers in three of those, according to Gus Sauter, Vanguard's chief investment officer. It underperformed in three, and matched the active managers in three.
Over longer time periods, index funds provided even more competitive performance because that's where the costs of active management get compounded over time. So investors tend to find that over a 10-year (or more) time horizons, most indexes have outperformed the active investments.
Recent studies provided more evidence that the failure of active management in beating their benchmark index is replicated across almost all categories, not only U.S. stock funds but also bond funds and even emerging-markets funds. What's more, a new study found that it is very hard, if not impossible, to justify active management for most individual, taxable investors over a long term. (Detail findings of the studies are elaborated in the "Index Investing Supremacy")
Investing in an index fund doesn't guarantee that you'll never lose money. Index funds will decline in a bear market and up in a bull market, right along with the market. Investors should really think long-term because indexing is a great way to capture the long-term returns of the marketplace with its low-cost benefit. If investors get nervous during a downturn and sell, they’ll probably miss the recovery.
Fully Invested
Index investing can be a great way to capture the typically fast burst that a market experiences when it's making the shift from a bear market to a bull market. A fully invested strategy of index investing positions investors very well to benefit from the large rate of return during the market recovery. It's designed to perform right in line with the market as it goes up. In the last five or six bear markets, particularly the very steep bear markets, the market typically had a very large increase in the first 12 months coming out of a bear market (read "One year after the bear").
Market just witnessed that after months of the most recent cruel bear market, which bottomed in March, the stock markets closed the third quarter ending Sept. 30. 2009 with huge gain and the Dow Jones Industrial Average reclaimed the 10,000 mark on Oct. 14, 2009.
As a bear market turns into a bull market, active managers may suffer from a couple of problems as a bear market turns into a bull market. First, the active managers tend to hold the most cash near market bottoms. Because of the cash drag in an actively managed portfolio, it won't fully benefit in the rebound.
15.10.09
Current bull is still below the median
As of Oct 14, 2009, the current bull market that started on Mar 9, 2009 has gained 61.41% within 219 calendar days. The current bull is still below the median in terms of both gains and days. The median gain for all bull markets has been 68%, and the median length has been 308 days, wrote Seeking Alpha.The table shows historical S&P 500 bull markets since index data begins in 1927. The table is sorted by bull market length. The bull markets had at least a 20% gain that was preceded by at least a 20% decline.
Table: Courtesy of Seeking Alpha
14.10.09
Confidence returned, Dow reclaimed 10,000 mark
U.S. stocks soared higher sparked by earnings news on Wednesday, Oct. 14, pushing the Dow Jones Industrial Average to close above 10,000 for the first time in more than year. The sharp rally signaled investors' confidence that the economy is recovering from the financial crisis and recession.
SmartInMoney reported that the Dow finished up 144.90 points, or 1.5%, to close at 10,015.86, its highest level since global markets plunge on Oct. 6, 2008, when the Dow fell below 10,000 amid the outbreak of financial crisis on Wall Street. The Dow first closed above 10,000 in May 1999 but retreated in the years after the dot-com bubble deflated. It then regained the 10,000 mark in late 2003 before peaking at 14,000 in October 2007.
Other indexes hit fresh one-year highs as well. The broader S&P 500 stock index gained 1.8% to end at 1,092.02, while the Nasdaq Composite rose 1.5% to 2,172.23.
The Dow is still more than 4,000 points off its all-time highs; while S&P 500, a broader measure of the market, are down 30 percent from their peaks.
The sharp rally was fueled by surprisingly better than expected results from two blue chips, Intel and J.P. Morgan Chase and a smaller decline than anticipated in U.S. retail sales.
SmartInMoney reported that the Dow finished up 144.90 points, or 1.5%, to close at 10,015.86, its highest level since global markets plunge on Oct. 6, 2008, when the Dow fell below 10,000 amid the outbreak of financial crisis on Wall Street. The Dow first closed above 10,000 in May 1999 but retreated in the years after the dot-com bubble deflated. It then regained the 10,000 mark in late 2003 before peaking at 14,000 in October 2007.
Other indexes hit fresh one-year highs as well. The broader S&P 500 stock index gained 1.8% to end at 1,092.02, while the Nasdaq Composite rose 1.5% to 2,172.23.
The Dow is still more than 4,000 points off its all-time highs; while S&P 500, a broader measure of the market, are down 30 percent from their peaks.
The sharp rally was fueled by surprisingly better than expected results from two blue chips, Intel and J.P. Morgan Chase and a smaller decline than anticipated in U.S. retail sales.
13.10.09
Three providers control ETF market
Among 95 ETF providers, the trio of iShare, State Street Global Adviser (SSgA) and Vanguard control more than 71% of the worldwide asset under management and 85% of the U.S. assets at the end of August 2009, reports SmartInMoney.
As a the largest ETF provider in terms of both number of products and asset, iShare alone controls 48.2% global market and 52.9% U.S. market with $429.32 billion asset under management from 391 ETFs. SSgA is second with 15.6% market share followed by Vanguard with 15.6% market share.
SPDR (SPY) leads the ETF markets with $73.3 billion asset under management as of the end of August 2009. SPDR from the State Street Global Adviser tracks S&P 500 index, an index of 500 largest businesses in the U.S.
At the second place is iShares MSCI EAFE Index (EFA) that track MSCI EAFE index, an equity benchmark for its international stock performance, with $33.5 billion net assets. Tracking performance of the MSCI Emerging Markets index, iShares MSCI Emerging Markets Index (EEM) trails closely at the third with 30.7 billion net assets. These three U.S. ETFs top the ranks in both U.S. and global markets.
This rank is not surprising as investors commonly use these three ETFs as vehicles to diversify their equity investment. Adding equity exposure of both developed nations outside of North America and emerging countries to equity of largest U.S. companies provides investor with a broad diversification covering global equities. This ability to offer exposure to such a wide variety markets and sectors with relative ease and cheap is EFTs’ main strength that is not offered by other investment vehicles. As a result, ETFs continue to enjoy considerable momentum.
As a the largest ETF provider in terms of both number of products and asset, iShare alone controls 48.2% global market and 52.9% U.S. market with $429.32 billion asset under management from 391 ETFs. SSgA is second with 15.6% market share followed by Vanguard with 15.6% market share.
SPDR (SPY) leads the ETF markets with $73.3 billion asset under management as of the end of August 2009. SPDR from the State Street Global Adviser tracks S&P 500 index, an index of 500 largest businesses in the U.S.
At the second place is iShares MSCI EAFE Index (EFA) that track MSCI EAFE index, an equity benchmark for its international stock performance, with $33.5 billion net assets. Tracking performance of the MSCI Emerging Markets index, iShares MSCI Emerging Markets Index (EEM) trails closely at the third with 30.7 billion net assets. These three U.S. ETFs top the ranks in both U.S. and global markets.
This rank is not surprising as investors commonly use these three ETFs as vehicles to diversify their equity investment. Adding equity exposure of both developed nations outside of North America and emerging countries to equity of largest U.S. companies provides investor with a broad diversification covering global equities. This ability to offer exposure to such a wide variety markets and sectors with relative ease and cheap is EFTs’ main strength that is not offered by other investment vehicles. As a result, ETFs continue to enjoy considerable momentum.
11.10.09
ETF assets hit an all time high
The ETF benefits have attracted many institutional investors and retail investors since the first launch in U.S. in 1993. U.S. ETFs enjoyed $47.4 billion inflow in the first seven months of 2009 while regular mutual funds suffered an outflow of $50.6 billion, reports SmartInMoney.
During the first seven month of 2009 global net sales of ETFs was $65.7 billion, which was still lower than the net sales of mutual funds of $97.5 billion, according to Strategic Insight.
A worldwide trend has seen global ETF assets hit an all time high of $891 billion at the end of August 2009 according to the September 2009 edition report from Barclays Global Investors (BGI). The new high of global ETF assets is 3.9% above the previous all time high of $858 billion set in July 2009. Year-to-date assets have risen by 25.3% which is more than the 18.0% rise in the MSCI World Index in US dollar terms. The universal ETF industry had 1,773 ETFs with 3,137 listings from 95 providers on 41 exchanges at the end of August 2009.
The U.S. ETF assets also hit an all time high of $607 billion at the end of August 2009, a 4.3% increase from the previous all time high of $582 billion set in July 2009. Meanwhile, the U.S. ETF industry had 710 ETFs, from 22 providers on 3 exchanges.
During the first seven month of 2009 global net sales of ETFs was $65.7 billion, which was still lower than the net sales of mutual funds of $97.5 billion, according to Strategic Insight.
A worldwide trend has seen global ETF assets hit an all time high of $891 billion at the end of August 2009 according to the September 2009 edition report from Barclays Global Investors (BGI). The new high of global ETF assets is 3.9% above the previous all time high of $858 billion set in July 2009. Year-to-date assets have risen by 25.3% which is more than the 18.0% rise in the MSCI World Index in US dollar terms. The universal ETF industry had 1,773 ETFs with 3,137 listings from 95 providers on 41 exchanges at the end of August 2009.
The U.S. ETF assets also hit an all time high of $607 billion at the end of August 2009, a 4.3% increase from the previous all time high of $582 billion set in July 2009. Meanwhile, the U.S. ETF industry had 710 ETFs, from 22 providers on 3 exchanges.
1.10.09
Big gains followed a brutal bear market
Stock markets closed its best quarter since 1998 on Wednesday and posted big gains following a seventeenth months of cruel bear market. Stock markets have rallied since the early spring and gained steam over the summer, wrote SmartInMoney.com.
The Dow Jones Industrial Average index is up 48% from its March 9 low and up 11% this year, although still down 31% from its October 2007 record.
The Standard & Poor's 500-stock index is up 17% for the year and up 56% from its March low but off 32% from its October 2007 high.
For the past seven months, it has been a beta-driven rally. As investors took advantage of the easy money and moved back into riskier assets, many of the biggest decliners during the crisis posted the largest gains. Buying volatile stocks is known as a beta trade. A financial statistic called beta is a measure of an individual stock's moves in relation to the market. A stock with a beta of two, it historically moves twice as much as the market.
Read the full article at SmartInMoney
The Dow Jones Industrial Average index is up 48% from its March 9 low and up 11% this year, although still down 31% from its October 2007 record.
The Standard & Poor's 500-stock index is up 17% for the year and up 56% from its March low but off 32% from its October 2007 high.
For the past seven months, it has been a beta-driven rally. As investors took advantage of the easy money and moved back into riskier assets, many of the biggest decliners during the crisis posted the largest gains. Buying volatile stocks is known as a beta trade. A financial statistic called beta is a measure of an individual stock's moves in relation to the market. A stock with a beta of two, it historically moves twice as much as the market.
Read the full article at SmartInMoney
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