stock prices
Last Wednesday, June 6, the Dow industrials moved up by 125 points after a two-month decline, and many investors wondered what happened in Europe to make stocks go up so much. I think that’s the wrong question. My view is that the market went up because of results in elections the day before in Wisconsin and in the second- and third-largest California cities, San Jose and San Diego. Investors are generally focused on Europe’s finances, since that’s what’s in the news. But many successful investors are more concerned about where the U.S. is headed in the next few years, and how it will deal with its vastly expanded debt and overwhelming budget deficit. They worry less about Greece’s current finances and more about the risk that in five or 10 years, the U.S. will wind up like Greece. To reach a balance in Greece or the U.S., tax revenues have to go up and/or spending has to come down. But rising taxes can hurt economic growth. And it’s hard to cut spending because special interest groups immediately attack any politician who dares to suggest cuts in the spending they profit from....
Some investors rely on technical analysis (basically, chart reading) when picking stocks. Relying on charts seems simpler than delving into a company’s fundamentals.
J.P. MORGAN CHASE & CO., $44.57, New York symbol JPM, has passed the Federal Reserve’s latest “stress test”, which measures how well banks and other financial firms would cope with a sharp jump in unemployment, falling stock prices and other unfavourable economic conditions. As a result, Morgan raised its quarterly dividend by 20.0%, to $0.30 a share from $0.25. The new annual rate of $1.20 yields 2.7%. Morgan also announced that it would buy back $15 billion of its shares. That’s equal to roughly 9% of its $170.1-billion market cap. Morgan will repurchase $12 billion of its stock this year and an additional $3 billion in 2013. The dividend hike and buybacks prompted the stock to jump 9% this week. However, low interest rates continue to hurt the revenue the bank receives on loans. Financial reforms passed by Congress also imposed new restrictions on debit card fees....
No market indicator or theory works every time, but the four-year U.S. presidential election cycle is about as good as they come. In essence, it works like this: In the two years leading up to the U.S. presidential election year, the political party and individuals in office tend to work hard at making voters happy. That’s because happy voters tend to support the party in power and office-holders who are running for re-election. To keep the voters happy, the politicians tend to hold off on negative surprises as much as possible, and to spend government money freely. Consequently, the U.S. stock market, and the Canadian market to a lesser extent, tend to move sideways to upwards in the two years before a U.S. presidential election. In the two years after the U.S. presidential election, bills come due and unpleasant circumstances tend to come out into the open. The government tends to cut spending (or at least spend less lavishly) and raise taxes. Consequently, these post-election periods are often times of weak stock market performance....
Lately I’ve heard some investors wonder out loud if they have “missed the rally”—the 16% gain or “market rally” in the Toronto stock market since the lows of last October. They wonder if they should “take some money off the table,” and possibly wait and “buy back in on a dip.” These are the kinds of things people worry about if they focus too closely on recent stock price fluctuations or on long-term stock-market averages. Stock prices are volatile. A 16% gain in four months may seem enormous coming at the end of a weak year for the market like 2011. It may also seem extraordinary if you compare it to the 8% to 10% gains that the market produced on average over the past 80 years or so. However, gains of 16% or more take place in the market every year or two, on average, over long periods....
Another week, another takeover! After last week’s surprise takeover of Gennum Corp.—which gave us a one-day, 119% gain—it was particularly gratifying to report that directors of RuggedCom Inc. (Toronto symbol RCM) had agreed to a takeover at $33 cash per share. RuggedCom, a recommendation of our Stock Pickers Digest newsletter, first became the subject of a takeover offer—for $22 cash per share—on December 19 of last year. In one day, it shot up from $14 to $23 in response. The company’s directors felt this bid was too low, and the stock crept up to $26 while they sought a better offer. The stock shot up to just under $33 on news of the latest bid, from Siemens of Germany....
Our investing strategy is a conservative one. We consistently recommend taking the long, rather than the short, view. But clearly not all stocks can be held indefinitely. A good portfolio is never a completely static one. Bringing in good stocks will obviously invigorate your portfolio. It is equally true that some stocks that fail to perform just aren’t worth holding on to. That leads many investors to ask us just when they should let go of a weak stock and replace it with something new....
This past autumn, a long-time reader and portfolio management client asked a question that other investors may wonder about in today’s turbulent markets. He wrote, “You constantly remind members to have a balanced portfolio and strategy for long-term success when investing. But when do you take profits? You have mentioned a couple of times to sell, such as when a stock makes up too much of your total portfolio, or if a company shows questionable management or business decisions. My main question is why don’t we sell when stocks move up and there are profits to be had?”...
As you know, I take investor expectations into account when making investment decisions. When investor expectations are high, it pays to be skeptical and wary. That’s why we advise downplaying stocks that are in the broker/media limelight. When that limelight focuses on a stock, it tends to push up investor expectations. When stocks fail to live up to investor expectations, as they inevitably do from time to time, their stock prices can plunge. Sometimes, however, the best stocks you can find are those that are just entering the limelight, and that are likely to spend a long time there due to great performance. So it pays to look on investor expectations as a valuable tool. But they are just one tool of many that you need to consider when you make investment decisions. The same idea works in reverse. Sometimes, low expectations become common when a stock runs into internal or industry turmoil. Great buying opportunities can appear when investor expectations get low enough on companies that still show signs of financial stability and long-term growth possibilities....