The Dow Jones hit a new record high yesterday, and as I write, it's higher for the day today.
Should you be cheering? If you're about to sell some stocks, yes. Otherwise, why bother?
If you're still buying stocks for your retirement, why would you cheer? The amount deducted from your paycheck will buy fewer shares of stock than before. More shares of stock are good.
True, the total market value of the shares of stock you have already bought is higher, and that makes you feel good . . . but so does cocaine, and it's not good for you in the long run.
Ideally, you should want stock prices to remain very low until right before you sell them -- then have them shoot up.
Of course, in real life they go up and down in unpredictable fashion and don't try to please you, me or anyone else.
The first quarter 2007 GNP is the lowest in 4 years. Will that bring the market down? Maybe.
Northwest Airlines emerged from bankruptcy. Will that bring the market up? Maybe.
stock market records
stock market records
Thursday, May 31, 2007
Tuesday, May 22, 2007
Read CAPITAL IDEAS by Peter Bernstein
Last week I felt the need for a organized, comprehensive, textbook-ish explanation of Modern Portfolio Theory and other related modern financial concepts. I found several in Amazon that looked, but are expensive so I delayed ordering them.
But Sunday I checked out the book CAPITAL IDEAS by Peter Bernstein, thinking it was a history of Wall Street, and from reading the first 50 or so pages last night, it's obviously the comprehensive look at Modern Portfolio Theory I've been looking for, though written in a more interesting way than most textbooks, and organized in a way that makes sense to me, as a history or chronology of the events. Plus, he goes into what he knows of the personal lives of the people involved, helping to humanize the events.
I remember seeing glowing reviews of his book on risk, but didn't realize before the value in his earlier books. This is the first one of his I've read, and now I know I'll be reading the rest.
Burton Malkiel's A RANDOM WALK DOWN WALL STREET is good but doesn't explain these things in the step by step order of their historical development. So if you've read that book but you're still fuzzy on how the pieces fit together, CAPITAL IDEAS seems to be the solution.
Capital Ideas
Capital Ideas
But Sunday I checked out the book CAPITAL IDEAS by Peter Bernstein, thinking it was a history of Wall Street, and from reading the first 50 or so pages last night, it's obviously the comprehensive look at Modern Portfolio Theory I've been looking for, though written in a more interesting way than most textbooks, and organized in a way that makes sense to me, as a history or chronology of the events. Plus, he goes into what he knows of the personal lives of the people involved, helping to humanize the events.
I remember seeing glowing reviews of his book on risk, but didn't realize before the value in his earlier books. This is the first one of his I've read, and now I know I'll be reading the rest.
Burton Malkiel's A RANDOM WALK DOWN WALL STREET is good but doesn't explain these things in the step by step order of their historical development. So if you've read that book but you're still fuzzy on how the pieces fit together, CAPITAL IDEAS seems to be the solution.
Capital Ideas
Capital Ideas
Thursday, May 17, 2007
Dividends and immediate gratification
In thinking about the usual need of people for immediate gratification, I'm surprised that so many people are hypnotized by the prospect of future capital gains versus immediate dividend or income income.
Increasing stock prices is one reason why companies buy back their own stock is to increase share value.
However, you can't spend any of this money until you sell the stock.
But apparently people feel an immediate gratification just from seeing a rise in the price of their stocks, even though they can't spend that money until they sell, and when they do they'll have to pay a hefty percentage to the government for capital gains tax. People get immediate gratification just from seeing the market value of their portfolio increase.
Plus, it's also true that, depending on when you buy the stock, it may be months before you receive that first dividend check. The market price can go up right after you buy it. But you actually have to wait a while for the dividend checks.
And, admittedly, the dividend yield on most stocks is so low that you have to buy a large amount of stock to get any kind of substantial check. And if you can afford to buy $20,000+ worth of stock at one time, the small percentage of current dividends still must not seem like much money to you.
The numbers for bonds and some other investments are larger than for most common stocks, but admittedly still don't seem a large return relative to the value of the money used to buy the security.
So, the magnitude of the numbers involve twist reality to make people think that they have big capital gains even though can't spend them, but dividends aren't worth waiting for, even though that's the current and ongoing reward for owning stock, which you can spend.
If you're going for capital gains and mistake market value for money in the bank, you think you still have all your original money plus the capital gains which could be much larger than any dividends.
financial immediate gratification
financial immediate gratification
Increasing stock prices is one reason why companies buy back their own stock is to increase share value.
However, you can't spend any of this money until you sell the stock.
But apparently people feel an immediate gratification just from seeing a rise in the price of their stocks, even though they can't spend that money until they sell, and when they do they'll have to pay a hefty percentage to the government for capital gains tax. People get immediate gratification just from seeing the market value of their portfolio increase.
Plus, it's also true that, depending on when you buy the stock, it may be months before you receive that first dividend check. The market price can go up right after you buy it. But you actually have to wait a while for the dividend checks.
And, admittedly, the dividend yield on most stocks is so low that you have to buy a large amount of stock to get any kind of substantial check. And if you can afford to buy $20,000+ worth of stock at one time, the small percentage of current dividends still must not seem like much money to you.
The numbers for bonds and some other investments are larger than for most common stocks, but admittedly still don't seem a large return relative to the value of the money used to buy the security.
So, the magnitude of the numbers involve twist reality to make people think that they have big capital gains even though can't spend them, but dividends aren't worth waiting for, even though that's the current and ongoing reward for owning stock, which you can spend.
If you're going for capital gains and mistake market value for money in the bank, you think you still have all your original money plus the capital gains which could be much larger than any dividends.
financial immediate gratification
financial immediate gratification
Tuesday, May 15, 2007
Chinese stock market boom times
The AP today carried an interesting story about the stock market boom in China. The Shanghai Composite Index has gone past the 4000 mark. And it could go past 5000 in a month. This, on top of a 130% increase last year.
One broker was quoted as saying that 6 months ago they opened 4-5 new accounts a day - now it's 40-50 a day.
This trading is called, "chao gu" -- stir-frying stocks.
And people are mortgaging their homes and dipping into retirement funds to buy their shares of stock. Trading volume in Shanghai and a smaller exchange in Shenzhen recently exceeded all other stock markets in Asia -- including Tokyo.
A 60-year old cleaning lady doubles her initial investment of 20,000 yuan in two months -- and is celebrated in the media.
P/E ratios are around 30 to 40 -- still well below 1999 Internet and high tech stock pinnacles in the US.
Yet the article concludes with the observation by a Chinese woman that, "We hear that before 2008, the government won't let the prices fall. We're not afraid."
Personally, I think somebody ought to be afraid. True, China's economy is growing at about 10%, an incredible rate. But so much of what the article describes sounds like 1999 all over again.
Apparently bank accounts pay just 3% dividends. I don't know if there's anything equivalent to American certificates of deposit or CDs, but the Chinese want higher growth.
I'd think the Chinese government would also be frightened of this boom. If everybody panics and wants to sell, how are they going to keep prices up, whether the 2008 Olympics have taken place or not?
China's huge push for growth comes out of a need to employ millions more people every year. Plus, there is a lot of unreported unrest in the countryside. If millions of Chinese people see their retirement savings vanish or lose their homes due to a stock market crash, that could cause a lot of damage to the economy, and pose a threat to the authority of the government.
It could soon be interesting times, investing in China.
Chinese stock market boom
Chinese stock market boom
One broker was quoted as saying that 6 months ago they opened 4-5 new accounts a day - now it's 40-50 a day.
This trading is called, "chao gu" -- stir-frying stocks.
And people are mortgaging their homes and dipping into retirement funds to buy their shares of stock. Trading volume in Shanghai and a smaller exchange in Shenzhen recently exceeded all other stock markets in Asia -- including Tokyo.
A 60-year old cleaning lady doubles her initial investment of 20,000 yuan in two months -- and is celebrated in the media.
P/E ratios are around 30 to 40 -- still well below 1999 Internet and high tech stock pinnacles in the US.
Yet the article concludes with the observation by a Chinese woman that, "We hear that before 2008, the government won't let the prices fall. We're not afraid."
Personally, I think somebody ought to be afraid. True, China's economy is growing at about 10%, an incredible rate. But so much of what the article describes sounds like 1999 all over again.
Apparently bank accounts pay just 3% dividends. I don't know if there's anything equivalent to American certificates of deposit or CDs, but the Chinese want higher growth.
I'd think the Chinese government would also be frightened of this boom. If everybody panics and wants to sell, how are they going to keep prices up, whether the 2008 Olympics have taken place or not?
China's huge push for growth comes out of a need to employ millions more people every year. Plus, there is a lot of unreported unrest in the countryside. If millions of Chinese people see their retirement savings vanish or lose their homes due to a stock market crash, that could cause a lot of damage to the economy, and pose a threat to the authority of the government.
It could soon be interesting times, investing in China.
Chinese stock market boom
Chinese stock market boom
Dividends and delay gratification
So much of investing, as so much of life, is a push-pull between the present and the future.
The better you resist the temptation to overeat bad foods now, the healthier you'll be in the future.
Same with exercise -- the more healthy exercise you do now, the better you'll be in the future.
The more money you save now, the more you'll have in the future. If you go into debt, you're really stealing from you're own future.
Yet it's so difficult to follow this through consistently. I've tried to tell young adults that they should start saving money, and they just start giving me excuses. Someday they'll be 50 or 60 and wish they'd taken my advice -- but they won't listen now. They'll have to learn the hard way. They just won't be convinced that if they'd work hard now, save a lot of money and let it grow, they could live like queens and kings in later life.
But "later life" is just not real to them yet. Drinking with their friends tonight is. The latest CD is real. The latest electronic toy. They just don't believe that if they give up those things now, they'll have much more pleasure later.
There's a similar dynamic with income investing. The best long-term income investments are the stocks of good dividend paying companies that consistently raise their annual dividends. Mergent has a list of about 300 companies that had raised their dividends every year for at least 10 years.
Yet, because the current dividend yield is so low, many income investors buy bonds, for the higher yield today. Even though the semi-annual coupon of bonds never goes up.
In 20 years, the dividend-paying stocks will be paying far more for the money they cost than bonds. But it will take 15 years or more to get to that point, and who wants to wait that long?
dividend investments
dividend investments
The better you resist the temptation to overeat bad foods now, the healthier you'll be in the future.
Same with exercise -- the more healthy exercise you do now, the better you'll be in the future.
The more money you save now, the more you'll have in the future. If you go into debt, you're really stealing from you're own future.
Yet it's so difficult to follow this through consistently. I've tried to tell young adults that they should start saving money, and they just start giving me excuses. Someday they'll be 50 or 60 and wish they'd taken my advice -- but they won't listen now. They'll have to learn the hard way. They just won't be convinced that if they'd work hard now, save a lot of money and let it grow, they could live like queens and kings in later life.
But "later life" is just not real to them yet. Drinking with their friends tonight is. The latest CD is real. The latest electronic toy. They just don't believe that if they give up those things now, they'll have much more pleasure later.
There's a similar dynamic with income investing. The best long-term income investments are the stocks of good dividend paying companies that consistently raise their annual dividends. Mergent has a list of about 300 companies that had raised their dividends every year for at least 10 years.
Yet, because the current dividend yield is so low, many income investors buy bonds, for the higher yield today. Even though the semi-annual coupon of bonds never goes up.
In 20 years, the dividend-paying stocks will be paying far more for the money they cost than bonds. But it will take 15 years or more to get to that point, and who wants to wait that long?
dividend investments
dividend investments
Wednesday, May 9, 2007
Inflation and TIPS bonds
One of the biggest risks of income investing is inflation. If you insist on picking stocks and selling them, you'll lose a lot of money that way. Income investors avoid that stupidity, but they still have to deal with the creeping loss of purchasing power. That's one of the discouraging things. Traditionally, income investors have bought bonds, but these are subject to inflation.
One good idea that happened during the Clinton administration was the introduct of Treasury Inflation Protection Securities which are basically zero coupon bonds with the government growing them faster as inflation rises.
How have the elderly traditionally dealt with inflation? Well, before World War 2, it wasn't an issue. If you had enough income from bonds then you continued to have enough income from bonds, although in the long run that could vary somewhat as interest rate levels rose and fell. Still, they didn't do that to extremes.
inflation TIPS bonds
inflation TIPS bonds
One good idea that happened during the Clinton administration was the introduct of Treasury Inflation Protection Securities which are basically zero coupon bonds with the government growing them faster as inflation rises.
How have the elderly traditionally dealt with inflation? Well, before World War 2, it wasn't an issue. If you had enough income from bonds then you continued to have enough income from bonds, although in the long run that could vary somewhat as interest rate levels rose and fell. Still, they didn't do that to extremes.
inflation TIPS bonds
inflation TIPS bonds
Monday, May 7, 2007
France to roll back socialism?
Hell froze over yesterday, which is another way of saying that the conservative candidate in France's presidential elections beat the rear end of the socialist candidate, and one of the first things he says is that France is going to be a friend of the United States from now on.
Plus he's going to make some much needed economic reforms to rollback socialism in France. All of which will be good for investing, since the more financial freedom people have anywhere in the world, the greater the wealth creation within the world. That's good for investors all over the world, whether they invest in stocks, bonds or even money market funds.
We saved Eastern Europe from communism, only to see Western Europe fall to socialism. Hopefully this is a sign that the continent is not totally and hopelessly lost.
French investments
French investments
Plus he's going to make some much needed economic reforms to rollback socialism in France. All of which will be good for investing, since the more financial freedom people have anywhere in the world, the greater the wealth creation within the world. That's good for investors all over the world, whether they invest in stocks, bonds or even money market funds.
We saved Eastern Europe from communism, only to see Western Europe fall to socialism. Hopefully this is a sign that the continent is not totally and hopelessly lost.
French investments
French investments
Subscribe to:
Posts (Atom)