Archive for February, 2008
Wednesday, February 20th, 2008
Investors are waiting for key inflation and housing numbers due out at 8:30 EST today. Per Briefing.com, Consumer Price Index (CPI) data is expected to show prices increasing 0.3% in January vs. 0.4% in December. In addition, housing starts are expected to come in at a tepid 1,015K vs. 1,004K in December. Futures are already trading lower in anticipation of the news - we’ll stay glued to the stock market news wire and provide the actuals as soon as they are released.
Posted in Stock Market News, The Stock Market | No Comments »
Monday, February 18th, 2008
These days, any mention of the housing market in conversation usually elicits a prolonged groan (especially if you live in California or Nevada). Homebuilders nationwide are feeling the pinch of a tight credit market, falling land prices, and mounting inventories. However, while the outlook for real estate is pretty dismal, times like these always make me ask myself: What would Buffett do? The answer? He would start looking for well managed, undervalued companies that he could pay bottom dollar for. While I don’t think now is the time to buy by any means, tenured and cash rich companies like MDC Holdings (NYSE: MDC) may have a place on my watch list moving forward.
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Posted in Mid Cap Stocks | No Comments »
Saturday, February 16th, 2008
Any investment has associated risks. Please read our disclaimer.
The latest edition of Barron’s brings some compelling facts about financial bellwether Wells Fargo (NYSE: WFC) to light. The bank, a large cap stock, is an efficient operator whose conservative approach has helped it weather the subprime storm. The fact that Warren Buffett’s Berkshire Hathaway is the bank’s largest shareholder isn’t exactly bad news either.
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Posted in Large Cap Stocks | No Comments »
Friday, February 15th, 2008
The stock market news wire is humming this morning on an announcement that Citigroup (NYSE: C) has barred investors in its CSO Partners hedge fund from withdrawing their investments. According to the Wall Street Journal, investors in the fund attempted to withdraw almost 1/3 of fund assets due to fear concerning mortgage backed securities. However, the fund has refused, explaining that they would have to sell valuable securities at huge discounts (which would hurt all investors).
So, is that Really so Bad?
True, the fund did make disproportionately large investments in leveraged securities (even breaking trading policies set within the firm). However, the fund was down only about 11% in 2007, and the previous manager has since been replaced. If you are a diversified institution this fund should only be a small percentage of your portfolio. Therefore, a loss of 11% is not so bad given the amount of risk involved (whether or not all information is truly available about the underlying securities).
Further, according to various sources, CSO is a corporate debt fund, not a fund focused on mortgage backed securities. By keeping investors from redeeming assets, Citigroup is essentially preventing them from making a knee jerk reaction that will guarantee all investors lose money.
Where There’s Smoke, is There Fire?
However, uncertainty drives the market and institutional fund managers are under pressure to “not do worse” than market benchmarks. This will lead many to head for the door as soon as they can. Their argument will undoubtedly be the proverbial: “where there’s smoke there’s fire”. Given the current market situation, I guess I can’t say I blame them.
Posted in Large Cap Stocks, Stock Market News, The Stock Market | No Comments »
Thursday, February 14th, 2008
While the rest of the market is busy worrying about the short term outlook for the economy, I prefer to focus on something we can do something about. That is, I want to focus on the basics and look for companies that have the potential for strong returns in the future. As a long term investor, I believe that small cap stock investing is a good way to add above average returns to a diversified portfolio.
Measuring Small Cap Performance
It’s important to compare the performance of your portfolio to industry benchmarks (in order to see how it is really performing). Remember, in the stock market there is no free lunch - when you invest in smaller companies you have the potential for strong returns, but also for large losses. This is why returns on these stocks are generally higher. So, if you are underperforming major small cap indexes, then you may be getting too little return for the level of risk you are assuming. The industry standard for comparing small cap performance is the Russell 2000 Index (^RUT). Over the last 5 years, it has returned 15.3% annually vs. 12.6% for large cap stocks. Further, growth and value indexes for the Russell 2000 also track performance by investing style (ticker for Russell 2000 growth index is ^RUO, ticker for the value index is ^RUJ).
Posted in Small Cap Stocks | 1 Comment »
