Sound Advice

Posts

Sound Advice: September 21, 2022

The Professional Approach To Stock Selection There are various approaches to stock selection, but the two that predominate are fundamental analysis and technical analysis. Fundamental analysis is a numbers-based method that evaluates key factors such as income and financial health, including the past, present, and future. Technical analysis emphasizes movements and formations of stock prices. Fundamental analysis is based on factors that over time have proved to have a meaningful impact on stock price movements. The optimal picture of corporate profitability is steady growth, both in the past and, prospectively, in the coming years. Steady growth is rewarded by higher valuations of underlying earning power than those accorded companies with erratic progress. When professionals screen (filter) the data of the broad universe of stocks, they look for companies that move ahead every year, regardless of the prevailing economic conditions. Although high past growth is no guarantee

Sound Advice, September 14, 2022

Why Exchange-Traded Funds? It’s hard to believe, but the first mutual fund was created almost 100 years ago. That was Massachusetts Investors Trust, which was born in 1924 and opened to investors in 1928. Other funds then came along, though it took four decades for them to develop a substantial following. The reasoning behind the development of mutual funds was simple. They offered diversification. Why buy one or several individual stocks when you could buy funds managed by professionals who could make well-considered selections from the broad universe of all stocks. The logic seemed reasonable and investors climbed aboard in huge numbers. But there was more than one hitch. In those good old days, the cost of making mutual fund investments was rather hefty. Indeed, the loads (a.k.a., sales charges) for purchases of fund shares tended to be in the upper single digits. Loads of 8.5% of the amount invested were not uncommon. So if, for example, you invested $10,000, you b

Sound Advice: September 7, 2022

Gas Prices Going to $10 a Gallon? NOT! Only 90 days ago, the level of hysteria surrounding the issue of inflation was overwhelming. The Number One concern at that time was the price of gasoline, which had topped $5.00 a gallon and more than a few esteemed Wall Streeters said “You ain’t seen nothin’ yet”. Surprise, surprise, the numbers then did an about-face and by late August, the national average price of gas had dropped below $3.90 a gallon. Some of that pullback was probably attributable to releases from the Strategic Petroleum Reserve, which had been targeted at one million barrels per day since last Spring. But the greater impact was from an across-the-board reduction in crude oil prices this year. West Texas Intermediate, one of the best-known standard measures, peaked at $120.93 a barrel on June 13 th , only to drop 25% 10 weeks later. Clearly, this is not just about tapping U.S. reserves to ease price pressures. According to the U.S. Energy Infor

Sound Advice: August 31, 2022

Is The Game Over For Bitcoins? What a roller-coaster ride it has been for Bitcoins, the best known of the cryptocurrencies. Back on March 9 th , 2020, just as the Covid pandemic was emerging, Bitcoin traded as low as 5,385.23. A bit more than 18 months later, that price soared almost a dozen times higher to 68,789.25. A number of other cryptocurrencies also had major gains. Things have changed. From the peak of last November, Bitcoin has dropped by nearly two-thirds. Ethereum, another fantasy currency, had an even more exciting ride, zooming almost 50 times from early March, 2020 to the high reached on Halloween last year, followed by a plunge similar to that of the Bitcoin. There are numerous other cryptocurrencies, most of which seem to have been created by those who specialize in science-fiction. Here are some of the more amusing names: Polkadot, Avalanche, Chiliz, Helium, Fantom, PancakeSwap, and Basic Attention. Cryptocurrencies are digital assets

Sound Advice: August 17, 2022

Recession . . . and then what? The prospect of a recession and the repercussions that come along with an economic downturn are unsettling to investors, but by the time there has been a reasonable level of agreement about such an occurrence, most, if not all, of the typical pullback in stocks has already taken place. Although periods of economic weakness are different and brought about by varying, often unique, developments, the result tends to be similar. The stage is set when the stock market has reached excessively rich levels. Even so, that alone rarely starts the drop. The trigger is usually an event or series of events that raises the level of uncertainty among Wall Streeters . . . as well as the public . . . and begins a chain of fear-induced selling. Over time, stock market valuations tend to be either too high or too low. They are rarely near the average of past valuations, which ranged between 15-18 times estimated earnings for the then-current 12-mont

Sound Advice: August 10, 2022

A Good Year For Hedge Funds After Lagging Badly For A Decade Investing in a hedge fund may well spark an interesting conversation at a cocktail party, but a closer look at these high-end opportunities tells quite a story. First, you have to be an accredited investor to join in. For the typical hedge fund, that means a net worth of at least $1 million, exclusive of your primary residence, as well as an annual income over $200,000 if you’re single, or $300,000 if you’re married. Then there’s the matter of fees. The typical fee for a hedge fund investment is 2% of assets managed plus 20% of the profits each year. That’s a high price to pay, but one would hope that the ostensibly super-bright people running these operations could generate returns that justify the cost. The reality is that they have not. Indeed, average hedge fund returns over the latest 10 years have been less than half those of the Standard & Poor’s 500 Index. For that matter, they have lagged beh