Archive for category: Newspaper Columns

Last week, I answered your question on the importance of comparing securities performance to the general market-the S&P 500.­­ Many investors ask “if it is better to have their money actively managed by a professional or to passively invest in a market index at a lower cost”? Today, we will examine the returns of some actively managed mutual funds and see how “the professionals” fared compared to the S&P 500 in the last year.

I designed a performance chart, testing some of the top US equity mutual funds (A Shares) by size in terms of net assets. For a fair comparison, I went to the Wall Street Journal and identified the top actively managed equity mutual funds by asset size. To alleviate potential bias from my broker friends, I selected the top five alphabetically and compared their returns.

In addition, I added the popular exchange-traded fund (symbol RSP) that tracks the “Equal Weight” performance of the S&P 500. My goal was to see IF actively managed mutual funds outperformed RSP, with a low expense ratio (.40%), zero front end sales load-commission and zero 2b-1 fees.

Per the front end sales load, the top five (A Shares) have a very hefty commission — $575 per $10,000. Some online brokers only charge from $7 to $10 to purchase shares of RSP and many other S&P 500 ETFs. Keep in mind, commissions are not illegal. It is your decision if you need or want to pay them. Upon request, brokers can sell institutional shares and bypass the commissions. These figures are from Yahoo Finance and are for educational purposes only. The total expenses can vary.

Since all five (A Share) equity mutual funds have a high front-end commission, I want to see if and by how much they outperformed the S&P 500 and RSP. I would hope with the high expenses/fees they would, at least, outperform the equal weight S&P 500 ETF by that amount to justify their additional expense.

Here are the top five-Actively Managed Mutual funds alphabetically, by name and symbol:

AWSHX American Funds-Washington Mutual A

AGTHX American Funds-Growth Fund of America A

AMECX American Funds-Income Fund of America A

AIVSX American Funds-Investment Company of America A

CAIBX American Funds-Capital Income Builder A

As you can see, three of the actively managed mutual funds (AIVSX-AGTHX-AWSHX) outperformed the S&P 500 (SPX-shaded green area). Two funds (AMECX-CAIBX) underperformed the market return of 16.36 percent. Only one actively managed fund (AIVSX) outperformed the equal weight ETF (symbol RSP). All of the other mutual funds underperformed this low fee S&P 500 exchange traded fund. Finally, past performance does not predict future results.

Last August, I ran a column that featured research from stock market researcher Joanna Pratt, concluding, “Only 24% of Active Mutual Funds managers beat the market over the past ten years.” In no way does this mean that actively managed mutual funds always underperform the market. With our performance comparison analysis, one can see this trend may be changing with three of these five mutual funds currently outperforming the market.

I work to eliminate personal bias when composing my columns. Today, I break my silence. Since so many investors hold these very popular mutual funds, I am pleased to see the tide may be turning performance-wise with these front end load (class A) share mutual funds. It would be great to see all five outperform the S&P 500 and RSP the next time I give this report.

Next week, I will compare the performance of some of the most popular exchange-traded funds tracking the S&P 500 to see if there is a difference. The results may surprise you. Plan your work, work your plan and learn to share your harvest!

Source-Stockcharts.com, davidoengland.com

http://www.nerdwallet.com/blog/investing/2013/active-mutual-fund-managers-beat-market-index/

Full Disclosure-I do not hold any securities listed in this column.

I have taught many my performance charting template, and you can learn as well. If interested in learning my performance templates for your securities, sign up for my next workshop Tuesday, May 20, at John A. Logan College. Take the time to learn how your securities perform compared to just investing in the market-low fee S&P 500 index funds.

This information is to be used for educational purposes only. If you would like to see my performance comparison using your security, simply send the symbol and I may work them into a future column.

Plan your work, work your plan and share your harvest!

Source: investopedia.com, stockcharts.com, davidoengland.com

Disclosure: I do not hold any securities mentioned in this column.

Last week, I answered your questions concerning the length of our current bull market and compared it with others since 1932. Today I will answer the question, “Using your system, what were the trading signals for Bank of America before this week’s sell-off?” Keep in mind, I do not give buy or sell recommendations but will discuss signals many traders will be watching to help with their buy and sell decisions.

To answer this question, I designed a one-year chart for Bank of America (symbol BAC). I used weekly price bars, along with my blue signal line and the S&P 500 in the background, to see how BAC trades in comparison to the market. I have also included, in the bottom box, my favorite institutional buy and sell momentum indicator.

When trading a particular security, I compare the security price action with the direction of the market. One can see BAC closely mirrored the direction of the S&P 500 (shaded tan area). This continued until the end of March when BAC dropped while the S&P 500 maintained its run. In technical analysis terms, this is called a divergence and signals possible price weakness ahead.

Referring to the chart, we can see traders began taking profits at the end of March when the price traded under my green trend line and blue signal line, accompanied by institutional selling (red bars). Those who used this system would have sold around the $16.50 area and would have bypassed the large price drop last week.

For buying, many traders will be watching for the price to close above a short- term trendline and my blue signal line, accompanied by taller green bars in the lower box, representing institutional buying that drove the price higher. Those who have taken their time to learn my systems have tools for better-educated financial decisions.

In a recent seminar, veteran economic professors who only use fundamental analysis scoffed at my buying and selling systems. Keep in mind, there is no system that is 100 percent. If anyone can send proof of how the fundamentals changed in late March, signaling strong sell signals, like with my systems, please send them my way-I would like to see them!

Sadly, this chart shows many (insiders) knew something many in the general public did not (as far back as the end of March) and sold. This helps to prove “there is an uneven playing filed” while investing in the market.

What should investors do to protect their “nest eggs”? Take the time to learn which technical indicators give the best signals for buying and selling for each of your securities. Know which indicators gave accurate sell signals in 2000 and 2008 and be prepared for when they show up in the future. It is not a question of if, but when. Will you be prepared?

I have taught many my buy and sell systems, and you can learn as well. If interested in learning my systems for your securities, sign up for my next workshop Tuesday, May 6, at John A. Logan College. Take the time to learn which indicators give the best signals for buying and selling for each of your securities.

This is not an open call to buy or sell BAC, but information to be used for educational purposes only. If you would like to see this strategy using your security, simply send the symbol and I may work them into a future column.

Plan your work, work your plan and share your harvest! Source: stockcharts.com, davidoengland.com

Disclosure: I do not hold any securities mentioned in this column.

 

It is that time of the year to review your 2013 performance, give tips on how to assess your results and questions to ask your financial professionals when auditing your account.

If investors do not know how their securities are performing compared to the market then they have a problem. Is this you? If your portfolio is managed by a broker or financial advisor, then you should have already had a call to schedule your 2013 review and 2014 outlook.

Review the following questions. If your broker has covered these topics, I applaud their efforts. If they have problems with these questions or you cannot get the facts, have patience and give them a chance to find your answers. Here are fair questions to ask during your account review.

What is your market outlook for 2014?

What is your opinion when comparing mutual funds vs. ETFs?

What is the total performance of my account; and each position since we began; and for 2013? How did my 2013 performance compare to the market, S&P 500?

What fees did/do you receive from my investments/trades, commissions, 12b-1 fees, etc.? Do you or your firm receive revenue sharing from my mutual funds?

What are my ongoing expenses/fees for 2014?

What is my downside protection strategy if we have another major sell off?

Be sure and note the tone and feedback when asking these important questions. Please keep in mind many brokers are hardworking Americans, working in a very difficult environment. These are fair questions that few investors ask, but should. Remember, it is your money and not theirs. Sometimes this gets lost in the shuffle.

One last question, if you are not at least matching the return of the market, “Why should I continue to invest with you?” Give your financial professional the same degree of professionalism and courtesy that you would expect to be given.

Professional brokers will have covered these areas when they suggested the securities you purchased while working with your asset allocation. They will have no problems answering these questions.

Conversely, many brokers would love to have better-educated clients. To help with this process, I created a document titled, “Fair questions to ask your financial advisor or broker”. It is available free-simply email me at my address below for your copy. This document is designed so you can have it front and center for your next broker/financial adviser visit.

Next week, I will audit the overall market performance to help you compare your returns with the market. Plus, compare the results of the largest specialty mutual funds with the largest index ETFs — the results will get your attention!

Plan your work, work your plan and learn to share your harvest!

Last week, we discussed many reasons for the current selling. I addressed the question, “Is it time to sell/take my profits and run?” I explained my rules for buying or selling using AGTHX and stressed to make decisions on what you see instead of what you hear, think, or feel is going to happen. Today I will teach what to look for to help answer your question, “Is the S&P 500 making a market top?”

Per the chart, look at the two previous market tops featured in the blue boxes A and B. In March 2000 (Box A) the market made a new high at 1553 and then took seven months before breaking down under the blue (sell) signal line. During months five and six, several attempts were made to break out to a new high. Selling did not come in until two months later. When selling came in, it was strong and lasted close to thirty months.

Let’s fast forward to June 2007 (Box B) when the market made a new high; it then went three additional months and made a higher high. The following month an attempt for a new high was made and was unsuccessful. In our terms this was very bearish. Two months later the market dropped through my blue (sell) signal line and continued to drop for twelve months, stopping at an attention getting 666.79.

In the lower box we can see the money flow indicator. Note after the markets topped (Box A and B) the money flow decreased. Currently, (Box C) the money flow is still extremely strong. This indicator is something I keep front and center to help with my analysis.

What can we gather from this data? First, markets usually take many months to make a top. Currently, (Box C) a new top has not been made, and we still have upward momentum. Second, many times after a new top has been made, several attempts are made by the bulls to make new highs. Third, these attempts can take many months.

No one has the ability to know 100 percent what will happen. We can study previous market behavior for clues to what may happen in the future. The largest threat to the U.S. market and economy would be an exogenous event (possibly geo-political) thus causing panic selling and sending the market into a downward spiral. These events cannot be predicted by technical, fundamental, or informational analysis. With our recovering economy, this could be disastrous and something I pray does not happen.

I have taught many my buy and sell systems and you can learn as well. If interested in learning my systems for your securities, sign up for my workshops beginning April 22 at John A. Logan College. Take the time to learn which indicators give the best signals for buying and selling for each of your securities. The above information is to be used for educational purposes only.

With that being said, if considering buying or selling you should ask yourself the following; 1. What was my strategy for entering and/or exiting the transaction? 2. Is this a trade or an investment? 3. What is the tax liability? 4. Am I buying or selling from emotional or rational reasons? 5. What would I buy with the available funds? When we step back and honestly answer these questions we are using rational criteria instead of emotions for our decisions.

Plan your work, work your plan and share your harvest!

Source: stockcharts.com, davidoengland.com

Disclosure: I do not hold any securities mentioned in this column.

Stop the presses-this is the week I usually do a Q1 performance review of the major indexes. Instead, I am focusing on the bombshell taking investors/traders by storm–high frequency trading.

Last Sunday, Sixty Minutes ran a feature with best–selling author Michael Lewis where he explains his new book “Flash Boys”. In the feature, Lewis states, “The stock market is rigged and even the richest, most sophisticated investors are getting “s#$%^&d” every day”. You can fill in the blanks.

First, Michael Lewis is a best-selling author so this is not his first rodeo. Lewis had the courage to show investors what went on “behind the curtain”, so to speak with “The Big Short” and “Liar’s Poker”. He shed light within major league baseball with the very popular book, “Moneyball”-a personal favorite. Michael Lewis is no rookie, to say the least.

So what’s the fuss? The 60 Minute broadcast focused on three Wall Street professionals who discovered how the market is rigged (their words) by high-frequency traders. These professionals say to use their exchange. How convenient. The book is provoking governmental reaction. The Securities and Exchange Commission stated, “It is in an “ongoing review of the situation focusing on high-frequency trading”.

New York State’s Attorney General, Eric Schneiderman, stated “There are some things here that may be illegal or should be illegal or that the markets have to be changed. So part of what we’re doing here in addition to looking for illegality is shining a light on the area”.

Do I think the stock market is rigged? I do see those with the largest portfolios have definite advantages. I plan to write on some of these later. I do not think ordinary investors will be affected by high frequency traders with the exception of another flash crash, like what happened a few years ago. If you are an active trader then it may cost you a few cents a year.

High frequency trading is not new or illegal. The Wall Street powers lobbied Congress and REG NMS-Regulation National Marketing System became legal in 2007. Its aim was to foster both “competition among individual markets and competition among individual orders”, per Wikipedia. There are good and bad points to the regulation. We are learning some of the points that are challenging to investors and traders. It will be interesting to see if this regulation is changed in the years ahead.

If you are a follower of my investing strategies, you have invested in high paying ETFs and Closed End Funds. Your high yielding dividends are reinvested with a goal of share building. You took the time to learn the benefits of share building over price appreciation. When the market dips, your high paying dividend funds will buy more shares exponentially since the price of the security is lower. If you have embraced this strategy then you could care less about this book and high frequency trading.

The bottom line-I think Michael Lewis is a marketing genius and his blunt assertion of the market being rigged is designed to sell books and capture press like what is happening here. I hope investors are not panicked when they take the time to discover the facts. Like always, calm heads prevail.

Plan your work, work your plan and learn to share your harvest.