capital preservation
Considering Dumping Stocks? Why You Should Reconsider
By George Leong for Daily Gains Letter | Apr 9, 2014
I’m starting to receive more questions regarding the state of the stock market and whether it’s simply a bout of profit-taking or the set-up of a deeper stock market correction.
First of all, panicking is not what you want to do. Yes, we are seeing some selling surfacing, but that doesn’t necessarily mean you should go and dump stocks.
After the year we had in 2013 and the fact that the bull stock market is in its fifth year and devoid of a major question despite the advance, it would not be a surprise to see some selling.
Also, with bond yields beginning to rise, we will see a reduction in the assumed risk and will likely see a shift of capital into bonds and away from the stock market as yields rise.
The reality is that the stock market is already seeing a decline in the assumed risk in 2014. Technology stocks and small-cap stocks are no longer the stars of Wall Street this year.
We are seeing a lack of market leadership and extreme selling on the momentum stocks, which clearly is a red flag. The concern is that the drop-off in the momentum stocks is significant and could likely extend lower since the rise was euphoric.
Instead of seeking added returns, we are seeing a move towards safety as traders are shifting capital to blue chips and large-cap stocks that are better equipped to withstand a stock market sell-off and have largely proven themselves over decades.
On the charts, the NADSAQ and Russell 2000 are down more than two percent in April versus a less than one-percent … Read More
Time to Ditch Swinging Cyclicals?
By George Leong for Daily Gains Letter | Apr 4, 2014
The stock market appears to be getting somewhat top-heavy. Scanning through my screens, I am quite amazed to find that the majority of S&P 500 stocks are well above their respective 200-day moving averages, which makes opportunities much more difficult to come by for the average investor who might look at their portfolio once a week or month.
But the buying in the stock market has still largely been with the technology, growth, and small-cap stocks, due to the higher potential to make quick money versus investing in blue chips or industrial companies.
In 2013, we saw staggering upside moves in some of the momentum stocks, such as Google Inc. (NASDAQ/GOOG), priceline.com Incorporated (NASDAQ/PCLN), Netflix, Inc. (NASDAQ/NFLX), and Chipotle Mexican Grill, Inc. (NYSE/CMG). These are the top players in their respective areas.
But that was then. Now, we are seeing a renewed interest in some of the safer names in the stock market, which is why the Dow Jones and S&P 500 outperformed in March.
My view is that while there will still be money to be made in some of the more speculative and momentum plays in the stock market, we could also see a pause for investors to digest the gains made.
Cyclical stocks, or those companies that swing with the economy, are still worth a look, but should the economic renewal stall and jobs creation dry up, it might be time to look elsewhere. Here I’m talking about those sectors such as auto, furniture, retail, travel, and restaurants.
Everyone is spending when all is good and people are making money on the stock market, but spending will … Read More
How to Build a Successful Investment Strategy for the New Year
By George Leong for Daily Gains Letter | Dec 23, 2013
Another year is soon to draw to an end. In my final commentary prior to the holiday break, I’m going to talk about something that is often not considered by investors when formulating their investment strategy.
But first, let me talk about my dad. He’s in his early 80s and is the most risk-averse investor I have met. He will invest in bonds, regardless of how they are doing. In high-yielding or low-yielding periods (which we are currently in), he will invest in the safety of bonds and squeeze out any last drop of interest. Yet while his investment strategy has always been status quo, this is not the way it should be. Let me explain.
Your asset portfolio should combine the right blend of equities and bonds as an investment strategy. But you need to be careful in your allocation. Too much in equities, and you’re vulnerable to downside risk; albeit, stacking your capital in stocks over the past four years would’ve paid off. Concurrently, if you’re like my dad and hold too much in bonds, then you miss out on some strong gains.
What you need to do for a well-planned investment strategy is consider the key variables, such as asset allocation, diversification, and small-cap stocks, to add potential return.
In my view, you need to be aware of exactly how much you have slotted in equities and bonds. This is also known as asset allocation, which is key to any prudent investment strategy.
By asset allocation, I am referring to how your investable assets are divided up amongst the three major asset classes: cash, bonds, and equities…. Read More
Investing Strategies for Conservative Investors and President Obama
By John Whitefoot for Daily Gains Letter | May 21, 2013
Despite the record run of the Dow Jones Industrial Average and S&P 500, many investors continue to sit on the sidelines, preferring capital preservation to wealth creation. It could be because they don’t trust the current bull market or the conflicting economic data trickling in. Many investors could also be playing it safe in light of the Great Recession that began in late 2007.
Taking a conservative stance generally entails considering lower-risk investing options like fixed-income Treasury bonds and blue-chip stocks—again, wealth preservation, not wealth creation. For many, this is a safe and steady strategy that a lot of conservative investors have been gravitating towards.
But for conservative investors looking for more growth, there are other options out there.
On Wednesday, May 15, the White House released the President’s financial disclosure forms, which includes his financial interests. Aside from a couple checking accounts, the President is heavily invested in index funds for his retirement; in particular, the Vanguard 500 Index Fund (VFINX). (Source: “Public Financial Disclosure Report,” The White House web site, last accessed May 15, 2013.)
The Vanguard 500 Index Fund invests in 500 of the largest U.S. companies, which span many different industries and account for about three-quarters of the U.S. stock market’s value. The fund returned 13.8% over the last year and 12.5% over the last three years. The Vanguard 500 Index Fund also has a $3,000 minimum investment. (Source: “Vanguard 500 Index Fund Investor Shares,” The Vanguard Group, Inc. web site, last accessed May 17, 2013.)
Investors interested in mutual funds need to contact either the company or their financial advisor to get involved.
Investors not … Read More
Do This One Thing to Steer Clear of the Noise This Earnings Season
By Moe Zulfiqar for Daily Gains Letter | Apr 11, 2013
Earnings season has begun. Companies on the S&P 500 are issuing their corporate earnings reports for the first quarter of 2013. But with all of this comes a significant amount of noise. Some stock advisors are calling for a reversal in the markets, saying we can’t go any higher; others are saying that we are only going to go higher.
Unfortunately, the amount of noise is increasing each day. On the upside, I have heard estimates that say the S&P 500 will go to 1,700 by the year’s end; but on the downside, some are predicting it will go below 1,400.
What you need to know for the first quarter of 2013 is that companies on the S&P 500 are expected to show negative corporate earnings growth of 0.6%. (Source: FactSet, April 5, 2013.) In the fourth quarter of 2012, companies reported corporate earnings growth of 4.2%, while in the third quarter, they saw a contraction.
Looking at the different sectors of the S&P 500, four out of 10 are expected to show negative growth. The rest are expected to show an increase in corporate earnings. The energy sector is projected to see the fastest decline in earnings by 4.3%, and a 7.9% improvement in corporate earnings is expected for the utilities sector.
For the first quarter, a significant number of the S&P 500 companies have issued warnings about their corporate earnings. Out of the 110 S&P 500 companies that provided guidance for first-quarter earnings, 86 companies, or 78%, issued negative guidance.
With all this said, should you sell what you have or buy more? At the very core, what … Read More
Risk Alert: Business Cycles About to Collide
By Mitchell Clark for Daily Gains Letter | Apr 9, 2013
It’s time for all stock market investors to re-evaluate their portfolio risk.
If a new bull market happens to develop, it’s easy to jump on the bandwagon. But with so much uncertainty and risk out there—risk that is 100% beyond your control—equity investors need to be safe.
There is always room for speculation with play money, but when it comes to money being used to save for retirement or dividend income being used while in retirement, capital preservation is absolutely key.
Utility stocks immediately come to mind when I think about capital preservation and the stock market. This is a sector that is often used to generate income for those who are in retirement.
Surprisingly, some utility stocks have actually been very good wealth creators in terms of capital appreciation. Like always, which individual companies you own matters. This is why the returns from mutual funds can be so mediocre. Diversification works, but always has a cost.
Looking at utility stocks, trends are important—trends in population growth, migration, or in things like power usage from industrial customers. Just look up a utility stock index and the stock market charts of those companies. You can see which companies are the standout players, and why they are because of migration trends in demand.
Another stock market sector that offers some safety and the opportunity for capital gains and decent dividends is energy. But in the oil and gas business, size counts.
A company like Chevron Corporation (NYSE/CVX) has proven to be a reliable stock market performer and dividend payer. It is an ideal retirement stock. And even with the amazing growth taking … Read More
Top-Three Critical Mistakes Investors Make
By Moe Zulfiqar for Daily Gains Letter | Apr 1, 2013
When it comes to investing for the long run, investors must make sure that they make their investment decisions based on extensive analysis—not buy on rumors or “inside information.” Through thorough analysis, an investor can gain peace of mind.
If you avoid these following common investor mistakes when investing, you can be a better investor over the long run and can witness your portfolio grow.
Critical Mistake #1: Basing investment decisions on a company’s price-to-earning (P/E) ratio
The P/E ratio is very commonly quoted in the financial media, but at the end of the day, by itself, this ratio doesn’t really tell you much about a company’s health. In essence, the P/E ratio is simply derived by dividing the company’s price per share by its earnings per share—it’s nothing more than that.
Let me ask one question. Currently, Apple Inc (NASDAQ/AAPL) trades just above $450.00 with a forward P/E of 9.09. (Source: Yahoo! Finance, last accessed March 27, 2013.) How does the company’s financial health look?
In order to make a better investment decision, you must look at other measures as well. By doing this, you can know how the company is doing and how efficient it really is in its business.
Critical Mistake #2: Taking high risk to make higher returns
It is true that the more risk an investor takes, the higher their returns are going to be. But investors who are investing for the long run must realize that this can kill their portfolio in a very short period of time.
By using proper risk management and capital preservation techniques, you can grow your portfolio … Read More
Build a Solid Retirement Portfolio in Less Than 60 Minutes
By Mitchell Clark for Daily Gains Letter | Mar 25, 2013
Good investing doesn’t have to be complicated. If you want to save for retirement using the stock market, most individual investors would likely choose a selection of mutual funds or exchange-traded funds (ETFs).
Going forward, a lot of people are viewing the stock market as very vulnerable; unless there is another war or the euro currency really does come apart, the next big pullback is likely to be an attractive buying opportunity for those able to put away some savings for retirement.
A portfolio investment strategy is always crucial, and over the years, I’ve learned to be very conservative with equities. There’s always room for a few highfliers, but I don’t bet the farm on anything.
Putting together a stock market portfolio is easy, and you can just write it down on paper in anticipation of the next big correction.
In retirement planning, it’s highly likely that capital preservation is a top priority, so a stock like The Southern Company (NYSE/SO) or another utility stock might be a good pick. The Georgia-based electric utility has a history of paying increasing dividends to shareholders and capital appreciation on the stock market.
For me, an important group to include in any retirement portfolio with equities is consumer staples. Companies like The Procter & Gamble Company (NYSE/PG), Wal-Mart Stores, Inc. (NYSE/WMT), and PepsiCo, Inc. (NYSE/PEP), to name just a few, are well-managed dividend paying stocks that are highly likely to survive any major shocks in the global economy, and they will certainly benefit from population growth.
A pharmaceutical stock is often a good idea. There are a number of blue chips in this … Read More
Best Capital Portfolio Available During a Downturn
By Moe Zulfiqar for Daily Gains Letter | Mar 20, 2013
In order to make up for the losses, or just to increase their portfolio quickly, investors might try to get the greatest bang for their investment buck by taking short-term trades—their time period may differ, anywhere from a day to a few weeks to a few months.
As a result of short-term trading, investors become vulnerable to volatility. Their investment positions might take a huge toll on their portfolio. When you’re trying to make short-term trades, you shouldn’t lose touch of your long-term goals—you must focus on capital preservation and growth over time by minimizing the risk.
With that said, there are many capital preservation techniques you can employ to save your portfolio; one of the best ways to do this is through trade management.
In essence, trade management is when someone tries to minimize their portfolio risk by using techniques to control their position rather than predicting the markets.
Consider this scenario: an investor’s portfolio is worth $10,000, and they currently think that it’s a trading market—so they’re taking short-term trades. The investor sees an opportunity and buys shares of ABC Inc. for $10.00 each.
If the price of ABC shares goes up—great for the investor; but what happens if they go down? In order to avoid huge losses, investors may want to decide on the amount of risk they are willing to take per trade based on the portfolio value. For the scenario above, they might decide that they will be risking two percent of their portfolio (notice that it’s a percentage of the portfolio, not the dollar value) on this ABC trade—and they’ll take the loss at … Read More
