Stock market - look up above

[jond]

Sort of, you could make a similar argument about a lot of things (GDP, earnings of large corporations, employment etc.).

I haven't seen charts of such(overlaying the Dow vs those measures), but I would be fascinated so see them.
But the correlation above is pretty strong.... Almost moving day to day in unison.

If it doesn't give any predictive value though it is not particularly useful.

The Fed isn't too secretive though. The Fed printing, who the president and congress is, etc all will tell us what the US dollar, and thus the stock market(IMO) is going to do I think.

Crude does the same thing sometimes; it'll track the damn dollar almost perfectly over long periods of time since it is denominated in USD. Crude also tracks the S&P quite well over certain long periods of time as well.

Yeah I won a pretty good bet on oil using that fact.
It's logical, oil is made in another country and the people selling it aren't dumb.
If our dollar is worth 10% less today, then they'll want 10% more dollars for a barrel of oil.
I always laugh at the news pretending like the price of gas is because of X.
No it's not, it's because of the value of the dollar 100%(IMO).

.

 

[sahtt]

Sahtt, I always love your insightful posts and you've answered my of my dumb questions in the past. Let me ask something a bit more open ended.

Let's say you have an extremely smart guy, with limited funds, $5-10K, who is willing to put in say 20 hours a week learning on his own, is there any reasonable expectation that this person could eventually turn this $$$ into a large pile of cash or would is it more likely just be a hobby/supplemental income?

I have very little spare time and what I do have I tend to do tech projects on the side for a few extra bucks. I'm getting old and SteveNY and I were just chatting about how when you have young kids you really start to think about the best use of the time you have. I will never be wealthy working for somebody else. I have gone through a half dozen startups, working 60-80 hour weeks and none have been successful. I'm tired of hoping and I need to take my and my family's future into my own hands. I'm trying to come up with a plan as to where I can invest my time in learning so as to have the largest ROI. In your opinion is trading a candidate for high ROI if you invest the time in learning how it all works, but don't have access to the funds and tools the pros have at their disposal?

You are too kind rob. Steveny is a great resource as well, he's mostly a real estate guy he knows a lot about the markets; especially the psychological component of dealing with gains/losses. I wouldn’t look at is as a secondary income stream as that is very difficult to accomplish. I’m going to make some assumptions here but:

a) You are or at least will eventually aggregate significant assets of some kind to pay bills in retirement, help your kids, help your family if need be, etc.
b) These assets will be compounded over a given period of time, say 10-20 years in your situation, before being slowly liquidated (or at least diverting all their earnings from reinvestment to cash) to fund these objectives.
c) You can either pay a ‘professional’ to help you make the investment choices or you can invest in yourself and do all or some part of it yourself. Even if you end up using an advisor, if you know what you are talking about it’ll make the process much, much better from a cost and risk standpoint.
d) Good advisors do not work for free. I work with a few hundred closely and they, on average, charge 1%. What’s 1% of a 100k portfolio (I’ll cheat and make the math easy for you – let’s say it grows at exactly 1% each year) after a 30 year period? What would be the difference if a professional handled half your funds and you handled the other half? What if the portfolio was a more realistic 500k?
e) My good advisors and myself use a ‘total return’ strategy. You can google it or ask me if you are unfamiliar. Reasonable total return strategies for people in their late 40’s through late 60’s (reasonable range of people about to enter retirement) aim for 3-5% above inflation. That’s it.
f) Given the top advisors I work with (and myself I suppose) have a clue what we are talking about, what % of 3-5% above inflation return is the 1% advisory fee? Looks a lot more significant now doesn’t it?
g) We already determined the net fees on our fantasy 100k portfolio mentioned above, but on a percentage basis, over a 30 year period (have to use time value of money here) how much have we lost as a percentage of our gains above inflation have we lost through our 1% advisory fee? I know it’s a PITA but it’s worth it to try to work through this problem.
h) Doing it yourself also helps mitigate fees. Mutual funds range significantly in fees and a lot of mutual funds don’t have fees significantly higher than ETF’s/indices despite popular sentiment. Most, but far from all, advisors try to mitigate fees but they usually don’t understand just how detrimental they are. I have 100% control over my account fees which are 7$ a trade and besides my close end funds, 0% expense ratios as they are all individual equities. It is not unusual for “normal” people to have portfolios exceeding 1% in annual fees derived from mutual funds/trading costs. This should make you queasy if you already saw the damage 1% did and how that compounds over time.

All this being said, can you match a financial advisor? I don’t know. Most don’t really do much on the investment side (the value is managing the client and getting him to invest the in right places to begin with) besides get into really complex products attempting to beat the S&P 500 (they won’t admit it but that is exactly what they are trying to achieve). There is zero statistical evidence to support mutual funds or ‘professionals’ (same thing on a granular level) can beat the S&P 500 over long periods of time using a similar risk portfolio. They just switch back and forth between whatever has the best 5-10 year track record because clients naturally invest like children (note I didn't comment on their intelligence) and think this is a good strategy. That is illogical and does not work.

I think someone who carefully manages risk (buy in tranches, don’t buy a stock that is way up unless you have an edge, understanding exactly how you will manage the trade before getting into it, etc.) and sticks to a simple approach like systematic investing into diversified low cost vanguard indexes can beat their other options. Now if you are trying to "trade" to make x dollars a month, you will likely fail. I would bet a large sum of money you fail not because I am a gambler, but rather strictly because I am not

You don't need to trade to get value out of the market. Invest X portion in low cost etf's or indices. Depending on your time and interest, invest the remaining funds into individual securities you think are undervalued. I am currently doing this exact strategy for my mother; I have 60% in 6 vangaurd indices and the remaining 40% in individual stocks that resemble my personal portfolio. In the end, that 40% is what is going to pay all her bills in retirement as it yields 6-9% and much of it is favorable tax wise (MLP's for instance, defer most taxation of distributions until the stock is sold. If you hold it until death, your beneficiaries get the MLP cost basis back up to whereever it is currently trading. Google this if it sounds interesting; it's obviously no free lunch).

I am a massive fan of dividend paying stocks and reinvesting the dividends. If you have spare cash and want to try it out yourself, this is a good place to start. If a company is offering to literally deposit a portion of their earnings into my bank account, why wouldn’t I take it? Everytime I spend $100 on something stupid I literally do the math on if I invested it into KMP for 10 years instead. If I could manage to get this idea cemented in wives I could probably be a billionaire.

 

[Ritesh]

Dividend paying stocks:

There was a great link on Motley fool about the top dividend paying stocks(10-13% which is crazy) BUT the majority of them were telcomm companies working in Rural areas. I question whether that is a stable place to put money! Let me see if I can find a link. P.S. - I was in AT&T(T) for a year or so. They had a 6% dividend return.

 

[sahtt]

Ritesh - it's probably not. Be careful on those. The only things yielding near double digits that IMO are sustainable (i.e. the balance sheet, projected realistic earnings, etc., can support it) are energy MLP's at the moment and even within that sector you need to be very careful. They also trade a premium because the taxes are more complex.

 

[Ritesh]

http://www.fool.com/investing/divid...hest-yielding-dividend-stocks-in-october.aspx

Pretty interesting read. You have to do your research BUT there are a couple of decent choices in there.

Sorry - some of you guys might not be able to access it.

Rank	Company Name	Dividend Yield	Market Cap (millions)
1	Windstream (NASDAQ: WIN )	12.2%	$4,843
2	Ship Finance International Limited	10%	$1,452
3	Vector Group	9.5%	$1,517
4	Frontier Communications (NASDAQ: FTR )	9.3%	$4,289
5	Consolidated Communications	8.8%	$704
6	Compass Diversified	8.2%	$849
7	Seadrill	7.8%	$21,850
8	HollyFrontier	7.6%	$8,407
9	PDL BioPharma	7.5%	$1,116
10	RLI	7.3%	$1,853
11	First Financial Bancorp	7.1%	$873
12	CenturyLink (NYSE: CTL )	6.8%	$18,987
13	Capitol Federal Financial	6.6%	$1,826
14	New York Community Bancorp	6.6%	$6,719
15	Valley National Bancorp	6.6%	$1,979
16	R.R. Donnelley & Sons	6.5%	$2,904
17	VimpelCom	6.4%	$21,969
18	Costamare	6.2%	$1,297
19	CTC Media	6%	$1,667
20	FirstEnergy	5.9%	$15,503
21	Pepco Holdings	5.9%	$4,594
22	OneBeacon Insurance Group	5.8%	$1,377
23	Diamond Offshore Drilling	5.6%	$8,719
24	Altria Group	5.5%	$69,610
25	PBF Energy	5.4%	$877

<THEAD>
</THEAD><TBODY>
</TBODY>

Source: S&P Capital IQ as of Oct. 7, 2013.
Note: These stocks are a good place to start your research, but they're not formal recommendations.
Let's look at the highest-yielding dividend stock this month: Windstream.
Windstream is a rural telecom provider that, like fellow rural telecoms Frontier Communications and CenturyLink, has been struggling to pay a stable dividend while dealing with a massive debt load. Unlike Frontier and CenturyLink, however, Windstream has not had to cut its dividend yet.
I stress the "yet" part because Windstream's cash payout ratio has steadily climbed for the past three years. It now stands above 100%, meaning the company pays out slightly more in interest expenses than it brings in in cash.

WIN Cash Dividend Payout Ratio TTM data by YCharts.
We have seen how this ends before. In February 2013, CenturyLink faced the same challenge and had to cut its dividend by 25%. The stock fell nearly as much after the announcement.

CTL Cash Dividend Payout Ratio TTM data by YCharts.
A year before that, in February 2012, Frontier Communications cut its dividend after its cash payout ratio went above 100%.

FTR Cash Dividend Payout Ratio TTM data by YCharts.
Investing in Windstream looks like picking up quarters in front of a steamroller; sooner or later you're going to get crushed. I'd pass on this stock.
Foolish bottom line
Remember, these seemingly irresistible yields could be ticking time bombs, so do your own due diligence. Also, make sure you diversify your picks across various sectors. As investors relearn every decade or so, you never want to put all your eggs in one basket -- no matter how tempting the dividends are.
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[docjohn]

I've had ftr for awhile...pretty safe play and a local company to me.

 

[jond]

BUT the majority of them were telcomm companies

Traditional TV is under threat. I know a lot of people dumping their $100-$200 TV bill for $8 netflix/Amazon/Hulu
Traditional Cell Phones are under threat. I know a lot of people switching to pre-paid(walmart or Tmobile) and dumping their $100 cell bill.
Add also the threat from google to bring is EXTREME speed internet for cheap.
Just my opinion, I dont think those areas are growth...

- - - Updated - - -

DShort does some really cool analysis of macro trends. He seems like bear to me, so take it with a grain of salt.
But using Shillers P/E10, apparently the market is about 40% higher than it's average.
Curious what everyones thoughts are on this? Does something like this keep you out of the market, or is there reason to ignore it?

http://www.advisorperspectives.com/dshort/updates/PE-Ratios-and-Market-Valuation.php

 

[sahtt]

jbond I agree with a lot of what you just posted. I am ~30 years old and most my friends are in their late 20's through early 40's. Almost no one, and I mean no one, in the under 32 group has cable. They think you are an idiot if you tell them you pay $100/m for cable. The exception is people obsessed with sports (I watch motogp and f1 and a little college football but that's it) since the NFL etc. has such a strangle hold on their content and you "need" cable if you are a "true" sports fan. $100+ cable bills' days are absolutely numbered IMO.

I'm not so sure about cell phones but I think the average price for full data/unlimited calling etc. will level out in the 35-50$ range depending on provider. The 120$+ for one iphone is a joke and won't last either.

Regarding the P/E cycle, I reference this all the time. This is one of the few things you have control over as an investor. Do not go in 100% when the market wide P/E is high. I'd suggest dollar cost averaging over a several year period if you are in cash. If you are already in the market like most of us, you have to rotate out of positions and into less favored ones or run the risk of getting crushed when the P/E cycle retreats - which it will.

*as a side note for those interested John Mauldin has some excellent analysis on the market wide P/E ratio at the time you initially invest vs the probability your returns exceed X% (historical data but still very useful).

 

[docjohn]

well another year in the books,and an amazing one for stocks,gold sucked wind ,bonds did very little.........any predictions on how equities will fair this year?

 

[jond]

I'm no expert, but I find the crossover at around 9 months ago interesting.
It might mean nothing at all, I don't know.
Personally, I'm going to adjust my 401K so all new money goes into a guaranteed interest fund instead of stocks, and maybe take 20% off the table.
If it drops back to 15,000ish, put everything back in.
Probably a dumb idea, but whatever.

.

 

[buckeyensx]

sahtt, I find your post regarding low cost index funds refreshing. Most financial advisors I have dealt with over the years have usually said they can outperform the market. All I need to do is buy their loaded fund and pay the 1-2% expense ratio . I have read that around 80% of actively managed funds will not beat the S&P 500 over a 5 year span and almost none will over a thirty year span. I am not in the financial services industry, but what has made the most sense to me has been to buy low cost diversified index funds (I am a Vanguard/Bogle disciple), invest on a semi-regular basis, and try to avoid the temptation to time the market. I have no idea which way the market will go in the next year. I have no idea which is the "hottest/best" stock to buy. I have no special advantage to leverage that would help me beat the market. I still plan on investing and hope over the long haul things will even out (i.e. dollar cost averaging). I have always had a fundamental problem taking advice from a financial advisor who makes a commission on the product he or she thinks is the best for me and my family. It is like asking the realtor if buying his/her listing is a good idea. I want my advisor's interests in line with mine or that they have no skin in the game at all. When I got out of residency back in 1996, there were several advisors roaming the hospital "helping" us idiot doctors plan our financial futures. Must have been like shooting fish in a barrel. I must admit it we are not a very bright bunch when it comes to money. Most of my buddies turn it over to "their guy" and have know idea of what they are paying in fees or how their investments are doing compared to any benchmarks. They literally turn their financial future over to someone else and never bother trying to learn anything about finances/retirement planning on their own. I am not against financial advisors at all. I want to learn as much as possible so I can make better decisions in the future. I feel most comfortable with fee only advisors who help me with whatever questions I may have about asset allocation or whatever. That way they are compensated for their time and I have no concerns about some hidden load/fee or anything else. Regarding your post about 1% in fees, I remember watching a documentary about the financial services industry and they stated that if your pay around 2% in annual fees over a thirty year span, you lose about two thirds of all of your gains on average. Nobody seems to pay much attention to 1-2%. I mean come on, I tip 20% when I eat out for crying sake! My point is the "power of compounding interest" works both ways. In my circle of friends, no one ever seems to think about the back side of compounding interest. Anyway, I just want to thank you for taking the time to post what seems like honest, intelligent, and thoughtful advice to the Prime community. By the way, feel free to post any thoughts/disagreements/problems you may have with anything in my post. Like I stated previously, I want to learn. (P.S. Please don't charge me 2% of the balance of my portfolio annually over a thirty year span so that my wife ,who is now a widow, has only 1/3 of the money she thought she would have, to retire to Hawaii. )
<object type="cosymantecnisbfw" cotype="cs" id="SILOBFWOBJECTID" style="width: 0px; height: 0px; display: block;"></object>

 

[xsn]

Let's look at the highest-yielding dividend stock this month: Windstream.
Windstream is a rural telecom provider that, like fellow rural telecoms Frontier Communications and CenturyLink, has been struggling to pay a stable dividend while dealing with a massive debt load. Unlike Frontier and CenturyLink, however, Windstream has not had to cut its dividend yet.
I stress the "yet" part because Windstream's cash payout ratio has steadily climbed for the past three years. It now stands above 100%, meaning the company pays out slightly more in interest expenses than it brings in in cash.

Windstream acquired the telecom carrier my company used. They are absolutely terrible. We started experiencing frequent, prolonged service outages under Windstream, and the worst part was they didn't seem to be able to fix them or sometimes even respond to support tickets. I don't know what they're doing in the back end with staffing but they seem to have either gotten rid of or lost most of the competent technical staff that came with these acquisitions, because we at least had decent support with the carrier that was acquired by Windstream. I've talked to other people who have had very similar experiences. So I would expect to see a lot of churn as business customers come off contract and look for a company that actually cares about providing reliable service and at least some semblance of customer support instead of seeming to be entirely focused on their short-term financial numbers.

 

[jond]

Just my 2cents since I just finished dealing with Windstream.
I think it probably depends on where you live, what the infrastructure looks like, etc.
I've been using Windstream for 4 years now and it hasn't been TOO bad. That said, I'm still on the old CavTel infrastructure(Windstream bought CavTel).
They have messed up a few times. They ported the companies main number away on accident once(we got it back, but not good), they ignored DNS change requests from me, and made typos on other DNS change requests. A few connection drops, etc. But, I'm not sure it's any worse than anyone else in my case?
This year our contract was up, so I went shopping. Both Verizon and Level3 offered us ~$40,000/yr cheaper connection off a $120,000/yr ISP bill.
I had to push Windstream, but eventually they matched the offer.
So IMO, I'm not an expert, but there's HUGE margin if they can come off the price that much.

 

[docjohn]

ok lets get back to some stocks.......i think zixi will get over 5 bucks sooner than later......i'm building on positions in esi and sale.........

 

[BATMANs]

Why don't you guys join the ranks in the Bay Area.... join a proper start up company... go IPO..... everything is well adjusted for and then some.

 

[jond]

Why don't you guys join the ranks in the Bay Area.... join a proper start up company... go IPO..... everything is well adjusted for and then some.

What do you mean, get IT jobs in the Bay Area or Invest in startups there?

.

 

[docjohn]

.............so I figured in November of last year since blockbuster online was going away that netflix would benefit so I've been building a position.....and I'm psyched that their Q4 results were very strong.....valuation be damned ,momentum is hard to bet against.Also keep an eye on the cloud...mdso very specific play on biotech cloud data/research paradigms ......biotech is very hot now.

 

[RPM217]

.............so I figured in November of last year since blockbuster online was going away that netflix would benefit so I've been building a position.....and I'm psyched that their Q4 results were very strong.....valuation be damned ,momentum is hard to bet against.Also keep an eye on the cloud...mdso very specific play on biotech cloud data/research paradigms ......biotech is very hot now.

Doc, Biotech has been hot for quite some time!!! Go GILD!!!!

 

[docjohn]

I already am in gild...also did you see the coverage of icpt by Merryl...800/share.....youza

 

[RPM217]

Big spread on price targets on ICPT


Price Target Summary




Mean Target:

488.00



Median Target:

449.00



High Target:

872.00



Low Target:

300.00



No. of Brokers:

7

 

[docjohn]

Thanks for weighing in Rog......:smile:

 

[sahtt]

Interesting activity on YPF. I did a 6m project for XOM toward the end of grad school about a year ago on a geological/petroleum engineering analysis of their reserves and the associated infrastructure and political risks. Massive, massive potential to the tune of several trillion dollars in reservoir lifetime profits (25-35 years depending on production techniques). It'll be split among many international partners but YPF will get a large chunk of it. My initial bid is still a few bucks out of the money - note this is a high risk and complicated stock to value.

Looking forward to stocks coming down further; a few are only 10-20% out of the money from bids I considerto have a very favorable (longterm) risk vs reward. My muni bonds and MLP's have been up recently regardless of market direction which is somewhat their intended function.

 

[jond]

.............so I figured in November of last year since blockbuster online was going away that netflix would benefit so I've been building a position.....and I'm psyched that their Q4 results were very strong.....valuation be damned ,momentum is hard to bet against.Also keep an eye on the cloud...mdso very specific play on biotech cloud data/research paradigms ......biotech is very hot now.

I wish I would have bought netflix when I kind of noticed that EVERYONE I know has it...
Oh well.

One concern is if the end of 'net neutrality' will hurt Netflix?
I don't have the answer.

With Net Neutrality it was illegal for internet providers to block websites, or to throttle bandwidth(to censor the internet).
As of last week, it's legal for them to block or throttle any website they want....

Theoretically internet providers could just push a button and put Netflix out of business and it would be 100% legal.
Being Netflix competes against Cable TV, and Cable TV is HURTING, ISPs have the motive....
I'm risk adverse, but I'm not sure I would keep a ton of money in it until it's all worked out.

 

[robr]

That's not exactly true, as a result of that decision the FCC now has the authority to basically make any rule they like in regards to regulation of the Internet including pricing. This was a huge win for the FCC.

 

[docjohn]

I wish I would have bought netflix when I kind of noticed that EVERYONE I know has it...
Oh well.

One concern is if the end of 'net neutrality' will hurt Netflix?
I don't have the answer.

With Net Neutrality it was illegal for internet providers to block websites, or to throttle bandwidth(to censor the internet).
As of last week, it's legal for them to block or throttle any website they want....

Theoretically internet providers could just push a button and put Netflix out of business and it would be 100% legal.
Being Netflix competes against Cable TV, and Cable TV is HURTING, ISPs have the motive....
I'm risk adverse, but I'm not sure I would keep a ton of money in it until it's all worked out.

No doubt...thats the beauty of the market...adding the 'human" element to the analysis of companies and their stock prices.You can take a bullish view or bearish and have valid points for each.Indeed Netflix is reliant on the internet...there are so many potential customers who are just not tech savy enough to figure out how to get the internet on a tv. mobile devices have helped.I'm partly a feel investor...there are parts of our brain that rapidly and unconsciously interpret data and give you a kinda thumbs up down feeling about something without you really knowing how it got there.