dow

We still think high-quality mutual funds with a long-term focus will beat stock-market indexes over time. If funds invest as we advise — sticking with well-established companies and spreading their assets across the five main economic sectors — they will likely lose a lot less than the indexes during a significant market downturn. That’s because big market slides are particularly hard on the stocks that were the most popular during the preceding rise, and our approach avoids excessive investment in these companies. In contrast, index funds do tend to load up on the hottest, most popular stocks as they rise. That’s because these stocks make up a growing proportion of the index as they increase in value. The most recent example is Potash Corporation of Saskatchewan, which, propelled by soaring fertilizer prices, had the highest market capitalization on the Toronto exchange last June. The shares have since dropped 54%....

DIAMONDS TRUST SHARES $85.20 (American Exchange symbol DIA; buy or sell through brokers) hold the 30 stocks that make up the Dow Jones Industrial Average. The fund’s top 10 holdings are: IBM, Exxon Mobil, Chevron Corp., 3M, Procter & Gamble, McDonald’s Corp., Johnson & Johnson, Wal-Mart Stores, United Technologies and Coca-Cola. The fund’s expenses are about 0.17% of its assets. Diamonds Trust Shares are a buy.

When making investment decisions, it pays to take a wide range of relevant facts — positive and negative — into account. Unfortunately, it’s all too easy to zero in on a scrap of information that reinforces your wildest trading impulses or deepest economic fears. It’s particularly risky if the scrap of information appears in a headline, especially on the front page. If enough investors buy or sell in response to a shared impulse or fear, it can have a big but temporary impact on the stock. Here’s an example. On Monday, March 29, headlines announced that President Obama had fired the CEO of General Motors. Many investors took this news badly, and rushed to sell stocks as soon as trading began. The Dow Jones Index opened at 7,630, down 140 points from Friday. The index kept on dropping and hit a low of 7,450 by 3 PM....

When making investment decisions, chart reading seems much simpler than delving into and weighing the fundamentals. It appears to be a winning combo of moneymaker and time saver. Some successful investors find it helps to know a little about charts. But if you rely on charts at all, you should look on them as just one of many things to consider in making decisions. Chart-reading often seems to work, at least in small ways, but this may be an illusion. You may only remember your successful chart interpretations. More important, chart reading tends to work in spurts. You may find it leads you to make five or even 10 small wins, then steers you wrong at the worst possible moment. That next mistaken trade may cost you much more than your winnings to date....

ProShares Ultra Oil & Gas ETF, $28.41, symbol DIG on New York, (Shares outstanding: 23.3 million; Market cap: $662.9 million) seeks returns that correspond to twice (200%) the daily performance of the Dow Jones U.S. Oil & Gas Index. The ETF first sold shares to the public at $70 and began trading on New York in January, 2007. The ETF’s top 10 holdings are Exxon Mobil (34.9%), Chevron (13.1%), ConocoPhillips (6.4%), Schlumberger (4.7%), Occidental Petroleum (4.3%), Devon Energy (2.5%), Apache (2.3%), XTO Energy (1.9%), Marathon Oil (1.8%) and Anadarko Petroleum (1.6%). As a general rule, we advise against the kind of leverage used in ProShares Ultra Oil & Gas, just as we advise against options trading, currency speculation and bond trading. In all these activities, it’s a rare investor who makes enough profit to compensate for the risk involved. Our view is that if you like the outlook for a market index, you should invest in stocks that will profit from a rise in the index....

DIAMONDS TRUST SHARES $86.04 (American Exchange symbol DIA; buy or sell through brokers) hold the 30 stocks that make up the Dow Jones Industrial Average. Currently, the fund’s top 10 holdings are IBM, Exxon Mobil, Chevron Corp., 3M, Procter & Gamble, McDonald’s Corp., Johnson & Johnson, Wal-Mart Stores, United Technologies and Coca- Cola. Expenses are about 0.18% of assets. Diamonds Trust Shares are a buy.

We still think high-quality mutual funds with a long-term focus will beat indexes over long periods. If funds invest as we advise — sticking with well-established companies and spreading their assets out across the five main economic sectors — they will tend to lose a lot less than the market indexes in periods when the indexes fall sharply. That’s because big market slides are particularly hard on the hottest, most popular stocks of the preceding market rise, and investing as we do leads you to avoid excessive investment in the hot stocks. Index funds, in contrast, do tend to load up on the hottest, most popular stocks as they rise. That’s because, as they rise, these stocks make up a rising proportion of the index. The most recent example is Potash Corporation of Saskatchewan, which had the highest market cap on the Toronto exchange in June, 2008, on the strength of soaring fertilizer and agriculture prices. The shares have since dropped 70%....

The Dow’s recent plunge may be the climax of a panic reaction that assumed the absolute worst for the economy. If governments around the world were doing nothing to counter the credit crisis — or, worse, doing all the wrong things as governments did in the 1930s — then the crisis could get a lot worse. My view is that governments are taking the kind of steps that will contain the crisis and eventually restore liquidity in the banking system. Stock market prices may be near the bottom. However, it’s only possible to spot market reversals in hindsight, so it’s too early to declare a lasting upturn. Even if we have seen the bottom, markets are apt to remain volatile and some stocks are bound to go to lower....

The Dow’s 11.1% gain on October 13, 2008 was the fifth biggest percentage gain on record. The 9.8% gain on Toronto the next day was the biggest ever. Markets have been volatile since those big moves. But my view is that governments around the world are now taking the kind of steps that will contain the crisis and eventually restore liquidity in the banking system. The upturn could mark the beginning of the end of the 2007/2008 market downturn and open up a number of tempting new hot stock picks. Even so, aggressive investments should still make up no more than, say, 30% of your portfolio. You can cut risk all the more by taking a conservative approach....

The Dow’s 11.1% gain on Monday was the fifth-biggest percentage gain on record. The 9.8% gain on Toronto the next day was the biggest ever. Markets remain volatile and have moved down since, but my view is that governments around the world are now taking the kind of steps that will contain the crisis and eventually restore liquidity in the banking system. You can only spot market reversals in hindsight, so it’s too early to declare if we are near a bottom. But even if we are, markets are apt to remain volatile and some stocks are bound to go to lower lows....