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Sound Advice: April 10, 2024

Dynamic charting and all kinds of goodies are now offered by a major brokerage house. So what! It comes as no surprise that one of the leading Wall Street firms has been beating its drum for its recently acquired online trading subsidiary. On the heels of a robust six-month market rally, investors, as usual, are much more interested in getting a piece of the action than they were early last Fall. That’s the way it has always been. Over the nearly one century since the inception of the Standard & Poor’s 500 Index, the best of times to make commitments (to stocks, not mental institutions) has been when the market has been weak and prices are low. For most things, folks tend to have increased interest in buying low. Strangely enough, however, the higher prices go, the more investors want to buy. So here we are at a considerably higher level than late 2023 and we now have the opportunity to sign up for an online account to take advantage of a less than remarkable group o

Sound Advice: April 3, 2024

You can beat the market with high beta stocks, if . . . . . . the market always goes up. The problem is that stocks tend to go up two thirds of the time and down one third of the time. What’s beta? Beta is a measure of a stock’s volatility over time relative to that of the overall market. By definition, the market (i.e., the Standard & Poor’s 500 Index) has a beta of 1.00. A stock with a high beta (i.e., over 1.00) will generally have greater movement up and down than the market itself. So if the market climbs 10%, a stock with a beta of 1.50 will climb 15%. And vice-versa. Conversely, a stock with a low beta such as .80 will have smaller movements in both directions. Stocks such as Nvidia, Advanced Micro Devices, and Etsy, are prime examples, typically with betas above 1.75. These are high growth companies whose market performance typically is reflected in unusual investor enthusiasm and hefty valuations while their expansion continues. Of course, the equatio

Sound Advice: March 27, 2024

“Barclays cut Apple’s rating to underweight and trimmed its price target to $160 from $161.” That kind of headline coming from what might be considered a respectable financial institution is worthy of nothing more than an eyeroll. A $1 cut? Really? Why not a 52¢ cut or some other adjustment of equal embarrassment. Although Wall Street analysts tend to fantasize about their ability to project the future, there is no reason to believe they have any gifted vision of what’s to come. Much of the work done by analysts focuses on prospective rates of growth in revenues, earnings, and capital expenditures needed to support the accelerated pace that may be developing. Within the broad parameters of looking ahead, one might be tempted to work the way downward through a profit and loss projection to specify a range of profitability that may be within reason several years down the road. Applying that range to the stock’s recent rates of valuation (price-earnings multiples) would yi

Sound Advice: March 20, 2024

Here’s Why No One Beats The Market Index In Las Vegas, the house always wins. And on Wall Street, the market always wins. Let me explain. Although the media tends to focus on the Dow Jones Industrial Average, which includes only 30 of the largest companies, professional investors compare their results with the Standard & Poor’s 500 Index, a far broader contingent. But there’s a hitch. The hitch is that the impact of the company shares included in the index is determined by their overall value. So it turns out that the top five companies (Apple, Alphabet, Google, Microsoft, and Nvidia) represent more than 21% of the value of the S&P 500. The movements of these five stocks largely determine the overall movement of the index. Over time, other mega cap stocks with strong performances may become increasingly important as their market capitalization (number of shares times the stock price) grows. That provides an ongoing infusion of new market strength. The only w

Sound Advice: March 13, 2024

In the Stock Market, Don’t Buy and Sell. Just Hold. By Jeff Sommer , The New York Times Jeff Sommer writes Strategies , a weekly column on markets, finance, and the economy. There's new evidence that market timing doesn't work. Your odds of success are better if you just hang on and aim for average returns, our columnist says. Selling all of your stock just before the market falls, and buying shares just before the market rises, is a brilliant strategy. If you could really do it, you would have bragging rights among your friends. And if you could repeat the feat over and over again, you would be fabulously rich — a true stock market wizard. But the ability to trade like that is rare, if it exists at all. Without question, it’s so hard that the vast majority of professional traders can’t do it, as countless studies have shown. I certainly can’t. Most of us are better off living with the reality that the stock market moves down as well as up, and that we can’t

Sound Advice: March 6, 2024

Sell Stocks in May and Buy Back in October? The phrase "Sell in May and go away, come back in October" is a well-known adage in the stock market. Although it is well-known and may be supported by the market’s tendency to register two-thirds of its annual gains in the first and last quarters of the calendar year, that pattern doesn’t happen every year and may indeed be disrupted for several years at a time. Following this advice blindly may not be the best strategy since the stock market is influenced by a wide range of factors, and historical patterns do not guarantee future performance. Another key concern is the tax impact of selling and buying on this schedule, which may lead to higher tax costs, which could offset whatever gains may have been registered. The idea behind the saying is that the stock market tends to underperform or be more volatile during the summer months, and investors might be better off selling their stocks in May and re-entering the market in