Thursday, August 27, 2009

Rate Your401(k) and see Where it Ranks.

Here's a handy little tool: BrightScope.com.

It's a web site that lets people view information about their employer's401(k) offerings and allows them to add information to the site in the hopes of building a better data set.

The database tracks over 2,000 statistics on401(k) plans including, net assets, fees, the number of participants, the average account balance, top investment holdings and service providers.

Some companies offering the best401(k) plans include:


  • Saudi Arabian Oil, Lockheed Martin (LMT

  • Southwest Airlines (LUV

  • Piper Jaffray (PJC

  • FedEx (FDX

  • Amgen (AMGN

  • Chevron (CVX

  • Exxon Mobil (XOM

  • AstraZeneca (AZN)

  • IBM (IBM

  • Microsoft (MSFT).



And the worst plans are offered by:


  • Darden Restaurants (DRI)

  • Big Lots (BIG)

  • RadioShack (RSH)

  • Zale Corp.(ZLC

  • Bob Evans Farms (BOBE

  • Best Buy (BBY

  • Whole Foods Market (WFMI

  • La-Z-Boy (LZB

  • Wal-Mart (WMT

  • Home Depot (HD

  • Tyson Foods (TSN)




To be fair, many of the retail chains perform poorly in the BrightScope.com ratings because they tend to have employees with short term employment and lower enrollment rates, which bring the overall average balance and participant figures down

Head on over to the site and see how your plan rates.

Tuesday, August 25, 2009

3 Retail Stocks For the BRIC Countries.

American consumers are spending less, and this presents a big hurdle for American retail stocks. But investors can still cash in on emerging markets over the next couple decades.
China

Big spenders.


The emergence of the middle class in so called BRIC countries (Brazil, Russia, India and China) is the most important demographic change of the 21st century.

According to McKinsey & Co.,
urban consumers in China will spend $2.3 trillion per year by 2025. And India - the world's second most populous country - will grow from 5% of the world's population to 40% over the next two decades.

If you're looking to dabble in the emerging market retail sector and capture some of this unprecedented growth, here are 3 stock recommendations courtesy of SmartMoney.

3 Emerging Markets Retail Stock Picks


AVON (AVP).
With a market value of $12.2 billion, AVON is the world's biggest direct seller of beauty products to women in over 100 countries. AVON derives more than 56% of its income from BRIC countries, with revenue growth of 24% in Brazil alone in 2008. The stock trades at 16 times its 2010 P/E, well below the 5 year average of 20.

American Movil (AMX).
Based in Mexico city, American Movil is Latin America's largest mobile phone provider. The company has a $67 billion market cap and added 3.9 million subscribers Q1 of 2009. Besides being the dominant player in Mexico, American Movil is the 3rd largest provider in Brazil, with plenty of room to grow.

Shanda Interactive Entertainment (SNDA).
Shanda Interactive Entertainment offers online gaming to the Chinese populace. The number of Chinese Internet users has passed that of the U.S., and the companies profits increased 25% in Q1.

Risk.


While the above stocks and markets offer the opportunity for tremendous growth, there is a risk. Perhaps the biggest risk when investing in the BRIC countries, as with any emerging market, is the lack of transparency. For example, much analysis of China revolves around it's impressive GDP growth of around 8% at a time when other countries are seeing negative growth. Part of China's impressive apparent growth comes from the fact that the government includes stimulus spending by the government! This leads to an over inflated estimate and lack of any clear idea of what the real GDP may be.

photo by ** Maurice **

Saturday, August 22, 2009

3 Things Needed For Real Economic Recovery.

Yahoo! Tech Ticker has an interview with Barry Ritholtz in which Ritholtz lays out why he thinks talk of an economic recovery is premature, as well as what he sees as necessary for a true recovery.
The Conference Board said Thursday that its index of leading indicators rose 0.6% in July - its fourth consecutive gain - suggesting the economy has bottomed and the recession will end this summer

[caption id="attachment_184" align="alignright" width="294" caption="Click the image to see the interview."]Click to see the interview.[/caption]

Barry Ritholtz is the CEO of FusionIQ and author of Bailout Nation, and he thinks that while the economy may have bottomed and the recession may technically end soon, the economy won't be on solid footing until 3 things happen.

Specifically:

  • The economy no longer needs government stimulus to keep from tanking.



  • Interest rates are allowed to rise above 0%.



  • Massive government intervention in the economy is no longer needed.


Given these requirements, if Ritholtz is right, it will be a few years yet before a true economic recovery is at hand.

Thursday, August 20, 2009

5 ETFs With Large Moats.

Morningstar ETFInvestor has a new list of ETFs which have the lowest percentage of no-moat stocks. (get the ETFInvester newsletter here )

For those not familiar with the Morningstar concept of "Moats", here's a quick definition:
"The idea of an economic moat refers to how likely companies are to keep competitors at bay for an extended period. One of the keys to finding superior long-term investments is buying companies that will be able to stay one step ahead of their competitors, and it's this characteristic-think of it as the strength and sustainability of a firm's competitive advantage-that we're trying to capture with the economic moat rating."

Morningstar's Five Moaty ETFs.


Rydex Russell Top 50 ( XGL)

Fees %
Management 0.20
Total Expense Ratio (10-31-08) 0.20

SPDR DJ Global Titans (DGT )

Fees %
Management 0.50
Total Expense Ratio (06-30-08) 0.50

DIAMONDS Trust, Series 1 (DIA )

Fees %
Management 0.06
Total Expense Ratio (10-31-08) 0.17

Vanguard Dividend App ETF (VIG )

Fees %
Management 0.20
Total Expense Ratio (01-31-09) 0.24

iShares NYSE 100 Idexes (NY )

Fees %
Management 0.20
Total Expense Ratio (07-31-08) 0.20

SPDRs (SPY )

Fees %
Management 0.06
Total Expense Ratio (09-30-08) 0.09

Tuesday, August 18, 2009

3 Key Signals When Timing The Stock Market

I'm not a practitioner of market timing, and I'm not a proponent of it. That being said, I read an article about it in a recent issue of Kiplinger's Personal Finance Magazine that made me reconsider.

To be fair, the article was more about timing big swings in the overall stock market as opposed to individual stocks. I still think trying to time individual stocks is a fool's errand, but I'm wondering if it might be possible to time the market as a whole.

The article does make the point that most successful timers don't move all in or all out at one time, but rather buy in or sell off in increments of perhaps a 3rd of their total at various points on the way up or down as signals switch. Again, this seems much more reasonable to me than the all or nothing approach that is often talked about in timing the market.

Without further ado, here are the 3 Key signals to timing the market as found in the Kiplinger's article.

The yields and valuations signal.


Former Federal Reserve Bank economist Pu Shen says he has found that when the difference between the yield of either short-term or long-term Treasury securities and the S&P 500's earnings yield (earnings divided by price) reaches "certain extremes" it can be an effective trigger. Unfortunately, the article fails to state what "certain extremes" means.

When back testing this over the 1970 - 2000 market returns, and simulating a move between stocks and cash on a monthly basis using short-term rates, an imaginary investor turned $1,000 into $101,000! That's pretty impressive, but again, just where we set the trigger (i.e. what we decide those "certain extremes" to be) makes all the difference.

The market breadth trigger.


Dan Sullivan (manager of The Chartist newsletter), thinks that when advancing stocks outnumber declining stocks by 2-1 over a 10 day period a buy signal has been reached. This signal has only hit 11 times since 1949, the most recent being March 23, 2009.

The moving averages trigger.


[caption id="attachment_153" align="alignright" width="300" caption=" You can see from this image of the 200 day moving average of the Vanguard Total Stock Market ETF (VTI) that the VTI crossed the buy signal around the beginning of June."] You can see from this image of the 200 day moving average of the Vanguard Total Stock Market ETF (VTI) that the VTI crossed the buy signal around the beginning of June.[/caption]

The moving average of daily stock prices is a common trigger for many market timers. Many websites such as StockCharts.com provide the charts for you, so this trigger becomes as easy as watching this line of averages for trends.

Many technicians believe that when the daily closing prices move above the average it is a buy signal; conversely, it is a sell signal when the line moves below the trend line (average).

Problems with the signals.


Obviously, these signals are not always 100% accurate. If they were, they would stop working anyway because investors would all wait for the signal and stop taking the actions that actually precipitate the signal in the first place - if everyone is waiting to buy until the price goes above the average, there will be no one buying to push the price up over the average. This is a simplified example, of course, but one for illustrative purposes.

Another problem is that signals that work in one environment often break down when the system enters extreme conditions. Case in point: The afore mentioned relationship between S&P 500 earnings yield and interest rates. Many economists believe that this signal stops working when ultra low interest rates become the norm, as they are today.

In the end, there is no perfect signal for timing the market, and those who are successful at it must rely on not only a good signal but also their ability to interpret the signal correctly and the discipline to execute a plan after the signal has been interpreted.

Friday, August 14, 2009

Open a Rollover IRA With Sharebuilder and Get 5 FREE Trades! (Promo Code)

I've had a Sharebuilder account with ING since before Sharebuilder was acquired by ING - and I've been very satisfied. It's only gotten better since the ING acquisition.

Recently, I received an email offer for 5 Free trades when you open a Rollover IRA account.

If you're looking to Rollover your 401K retirement account to an IRA, check them out. Here's the link:

https://www.sharebuilder.com/sharebuilder/promotions/default.aspx?promocode=IRAROLLOVER%2f

Or you can enter IRAROLLOVER in the promo code field.

Here are the limitations and details:

ShareBuilder IRA

* No account fees or minimums
* Over 250 no-load mutual funds now available
* Get 5 free trades to get started




"Open an IRA account to receive 5 real-time trade credits. The trade credits will be posted to your account the next business day and will expire on 03/31/10. This offer is not valid with any other offer and only applies to IRA accounts."




I'm not sure Roth IRAs are included in the deal, though I suspect they aren't since that's not a simple rollover due to the change in tax treatments between a Roth and traditional IRA account.

Thursday, August 13, 2009

Can You Time the Market? This Guy Says He Can.

Meet Bob Parish. Mr. Parish lost about 70% of his retirement savings in the 2000-02 bear market, after the tech bubble burst.

Feeling burned by his financial advisor, he struck out alone with what he had left and set out to time the market. Timing the market is generally considered a fool's errand by most financial advisors, but in the case of Mr. Parrish - market timing worked, or so it would seem.

Parrish managed to catch most of the market gains between 2003 - 2005 but turned bearish in 2006. Still, despite being early on his bearishness, he did gain an annualized 23% since 2002. He's been in bear funds since 2006 and doubled his money in 2008 - when most were seeing their portfolios cut in half!

So, sounds like he's pretty adept at timing the market right?

Maybe, then again, the past decade has been pretty remarkable in its uniqueness. We've experienced a return fear, the run up in commodities and talk of reemergence of inflation, stagflation and possible 2nd great depression. Given that there is very little that is average about the 2000's, it will be interesting to see how Mr. Parrish and his timing are over the next 5-10 years.

Wednesday, August 12, 2009

13 ETFs to Hedge Against Inflation.

Inflation is in the news again, thanks to worries over the historic deficit spending in Washington today. If the Fed gets the timing wrong on the next round of interest rate hikes, then inflation could be a real problem.

According to a recent working paper by the International Monetary Fund:


"Given the policy tools employed through the crisis so far, particularly massive injections of liquidity and quantitative easing, the risks of this outcome remain significant. This implies that inflation hedging should remain an important component of long-run investment policy."



To that end, here are 13 ETFs ...

TIPS (Treasury Inflation Protected Securities)


For domestic TIPS, check out the iShares Barclays TIPS Bond Fund (TIP) and SPDR Barclays Capital TIPS (IPE). TIP is has over $14 billion in assets and sports a 0.2% expense ratio and 4.68% yield. By contrast, IPE has $288 million in assets, a  0.19% expense ratio.

Like everything else in the investing world these days, there's an international option: the SPDR DB International Government Inflation-Protected Bond ETF (WIP), which follows inflation-indexed bonds in foreign markets. WIP has $394 million in assets, a 3.70% yield and a 0.5% expense ratio.
TIPS have lost value recently because the major fear is still deflation, but by the time everyone is talking about inflation as a serious threat, their price will have shot up.

Gold and Precious Medals.


Commodities are a classic inflation hedge, and now you can use ETFs to simplify your diversification.
Here are some of the more popular ETFs in this category:

  • SPDR Gold Trust (GLD) (stores underlying gold in a vault)



  • iShares Silver Trust (SLV)



  • PowerShares DB Gold Fund (DGL)



  • PowerShares DB Precious Metals Fund (DBP)



  • PowerShares DB Base Metals Fund (DBB) (indexed to industrial metals such as aluminum, copper and zinc)



  • PowerShares DB Agriculture Fund (DBA) (for shelter from rising food prices)


Energy, especially Oil stocks, are also another type of inflation hedge. Here are 2 solid ETFs from this category:

  • U.S. Oil Fund (USO) (tracks crude-oil futures contracts)



  • Energy Select Sector SPDR Fund (XLE)


Foreign Currency.


Another potential hedge might be foreign currencies, since the dollar would likely lose value against foreign currencies if inflation rages. Here are 2 choice ETFs for that hedge:

  • CurrencyShares Euro Trust (FXE)



  • PowerShares DB Dollar Index Bearish Fund (UDN)


No one can say for sure whether we're in for times of high inflation, deflation or a return to normalcy (whatever that is), but it's important to have a least some of your portfolio in various vehicles for insurance against such wealth destroying environments.

Tuesday, August 11, 2009

Jim Cramer's Tips For Picking Stocks to Buy.

I've just finished re-reading Jim Cramer's Real Money: Sane Investing in an Insane World and thought I would share some tips I found inside.

This is a suggested list of the types of stocks to buy for a diversified portfolio.

1. Buy local.


Cramer recommends that you buy stock in a local company, or even a chain that has a store in your community because you will have a natural interest in the company and also help employ local workers. Besides that, if its a store or restaurant that you can spend your money at, then you'll be helping yourself along the way too! Also, if it is a completely local company, and it turns into a growth stock, then you have a better chance of getting in before it reaches national attention, and potentially experience greater growth in price.

2. Oil stock.


Even without high energy cost years like 2007-2008, Oil stocks are consistent performers. The world needs energy to grow, and alternative energy is just that - alternative. I've no doubt that in the decades and centuries to come, alternative energy will come to replace fossil fuels, but we are a long way off yet. In the meantime, buy shares in Exxon Mobil (XOM ), BP PLC (BP ), ConocoPhillips (COP ) and the like.

3. High yield blue chip.


You want a brand name, blue chip stock that yields more than the S&P 500. Ideally, you'll want a stock from the S&P 500 Dividend Aristocrats , which lists high quality companies with a history of raising their dividend year over year for the past 25 years or more.

4. Financial stock.


Hmm..given the recent implosion, and subsequent government take overs of the financial sector, it might be best to hold off on these stocks until they get their act together. But, having said that, Cramer's take is that financial stocks have been historically stable and secure. In any event, you should stick to the regional bank instead of the national/international investment bank as regional's are much more stable and offer greater opportunity for growth.

5. Speculative.


This is the one you cut lose on. Swing for the fences, and buy that risky biotech (or whatever) stock you think is the next Microsoft. Aim for the under $10, small to microcap. Just never have more than 25% of your discretionary investable cash in speculative stocks.

6. Secular growth stock.


Go for a stable blue chip, with a solid product or service which sells well regardless of economic conditions. Be sure to catch it in the down cycle, when the price has dipped but not because of any fundamental problem with the company. Companies that fit this bill include: Anheuser-Busch Companies (Budweiser) ( BUD),Procter & Gamble ( PG),Pepsi ( PEP), Johnson and Johnson ( JNJ), and Coca-Cola ( KO). watch the P/E value, and buy when it dips, that way it will be more likely to rebound.

7. high quality cyclical stock


Buy this stock when the economy is in recession, because these are the stocks that perform well when the economy does well. Dupont( DD), 3M), Deere & Co (John Deere DE), and Dow Chemical ( DOW) fit into this category. The key is to buy them when they're at a bottom, and sell them when the economy is booming.

8. Technology company.


This is pretty obvious, but he does offer the caveat that if you picked a tech stock as your speculative stock (#5, above), then this one should be a mature tech company that pays dividends, like Microsoft or IBM.

9. A young retailer.


Retail stocks offer opportunity for huge growth, if you buy before they get big. Once they go national, the rapid growth is over and the retailer will often have trouble adjusting.

10. Hope for the future, with a non-tech stock.


Pick something off the S&P 600, which tracks midcap stocks. This will let you get in on the growth before the stock becomes a large cap stock.

Friday, August 7, 2009

Beware Target-Date Funds!

Target-date funds were supposed to be the ultimate idiot-proof investment vehicle for retirement savings.

Target-Date Funds danger

The idea is that asset allocation is the single most important factor in determining investing success, and most people get it wrong. Many others never even try because they find the concept too daunting.

Many people know they should save for retirement, but they don't want to be investors - they don't know whether they should invest in stocks, bonds, or mutual funds. Enter target-date funds.

Target-date funds are supposed to take all that complexity out of saving for retirement. You simply choose the target date of your retirement, and the investment firm does the rest. It's like auto pilot, with the fund manager gradually shifting more of your assets to bonds as your retirement date gets nearer, thus reducing the volatility and preserving the value.... in theory.

What happens when theory meets reality is a different story.

As a recent article from USNews points out:
"Many target-date fund investors, including those near retirement age, recently suffered large losses. Long-term investors with a retirement date between 2050 and 2055 had a median return of negative 47.5 percent between October 2007 and February 2009, according to a recent Watson Wyatt analysis of 72 target-date funds."

No big deal, right? I mean 2050 is a long way off, and those investors should expect some volatility in order to earn more overall. Fine. But here's where it breaks down:
"Those on the verge of retirement didn't fare that much better. Investors interested in retiring in 2010 had a median return of negative 31.9 percent. But losses varied considerably among funds because of the large differences in stock market exposure. Funds with a target date between 2050 and 2055 were invested between 51 percent to 95 percent in equities, Watson Wyatt found. Those with a retirement date of 2010 had between 32 and 80 percent of the fund exposed to the stock market."

Two years out from retirement and some funds had as much as 80% in stocks?!

That's criminal!

Those managers got greedy and wanted to keep their returns high, so they took on much more risk than advertised. That violates the entire intent of target-date funds, and also violates the faith with which investors invested in those funds.

Let this be a stark reminder that there is no true risk-free, cruise control method for investing. You have to know what you're investing in.

Incidentally, this is also a reminder of why index investing is so popular. People in those funds could have invested 80% of their money in a broad based ETF (like the Vanguard Total Stock Market ETF VTI) and 20% in the iShares Lehman Aggregate Bond AGG ETF and gotten the same results (OK, very similar results) with far less fees and the knowledge that such losses were an inherent risk of the asset allocation, and not subject to the whim of a fund manager!

Photo by chego101

Thursday, August 6, 2009

Tech Stocks Will Lead The Rebound.

When it comes to the market rebound, Paul Wick thinks that technology stocks will lead the way.
Tech stock


Wick has been the manager of Seligman Communications and Information fund since 1990, and has outpaced most tech funds by 2.6%, annualized since he started.

Buy recommendations.


In a recent Kiplinger's interview, Wick recommended buying any of the following stocks:

Parametric Technology Corporation (PMTC)
Parametric Technology Corporation develops, markets, and supports product lifecycle management (PLM) software solutions and related services enabling companies that enhance their product development processes.

Synopsys Inc. (SNPS)
Synopsys, Inc. provides electronic design automation software and related services for semiconductor design companies in the United States, Europe, Japan, and the Asia Pacific.

Amdocs Ltd. (DOX)

Amdocs Ltd. provides billing software for telecom and cable companies.

McAfee, Inc. (MFE).
McAfee is well known for their antivirus sotware, but they run the gamut of security software.

Symantec Corporation (SYMC)
Symantec is, of course, the long time rival of McAfee.

Check Point Software Technologies Ltd. (CHKP)
The company offers its customers a portfolio of network and gateway security solutions, data and endpoint security solutions, and management solutions. VPNs, secure messaging, etc..

Riverbed Technology, Inc. (RVBD)
Makes hardware to improve network performance.

Activision Blizzard, Inc. (ATVI)
Activision Blizzard makes video games, and has one of the most reliable pipelines.

Wick says he likes these stocks because they have a solid install/customer base, and are not overpriced.

In general, he recommends tha investors look for tech companies that are generating positive cashflow, and provide a return on capital.

Photo by Fox O'Rian

Monday, August 3, 2009

Recent Stock Market Highs; A Reminder To Watch Your Stops.

Depending on how you measure the performance of the stock market, it has risen roughly 30-35% from its March 2009 lows. Maybe this is the beginning of a new bull market, or maybe it's just a sucker's rally. How can you be sure which it is?

[caption id="attachment_121" align="alignnone" width="300" caption="The DOW JONES INDUSTRIAL AVERAGE has broken out since its March low. Can it last? "]The DOW JONES INDUSTRIAL AVERAGE has broken out since its March low. Can it last? [/caption]

Well, the beauty of it is that you don't need to know or care, if you're using Stops.

The trick with Stop Loss orders is to set them at the right levels. Still, determining what price you'd be willing to sell a holding for is a lot easier (and preferable) to trying to divine what is likely to happen in the stock market or to a specific stock in the near future.

So, take these recent highs a an opportunity to lock in some profit, by nudging your stop loss order trigger price up. That way, if the market discovers that the housing market or auto sales tank after the government bailouts and stimulus programs end, driving the market down a couple hundred points again - you'll be covered.