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Archive for February, 2012


What does it mean to become the “most valuable on the planet”

Today’s “overheard” column in The Wall Street Journal asked the above question.  The question was generated from Apple becoming the most valuable stock.  Some other stocks that have held that title in the past include: General Motors ( decades ago), Microsoft (1999), Cisco Systems (March 2000), and General Motors (latter in 2000).  “…reaching the top spot has proven to be something of a curse.  Recently deposed Exxon Mobil is one exception, having made it to the top multiple times in a variety of different incarnations.  For most of these companies, the rapid growth, superior products, investor giddiness or sheer luck that got them there succumbed to mean reversion, technological changes and hungrier upstarts putting a target on their backs. Either Apple really is worth as much as the major listed U.S. phone companies, railroad operators and car makers combined-or history is destined one day to repeat itself.”
There is a lot food for thought in this article.  If you are a momentum or growth investor you are probably asking your self how much more you should buy.  If you are a value investor, you may be asking yourself if you should sell, take your profit and reinvest in other securities.
Apple’s growth is has been the driving component of the recent growth in the  S&P 500 and the NASDAQ.  If you own mutual funds that invest in large corporations or technology, you probably have more exposure to Apple than you think.  This may be a good time to review your financial plan and your investment portfolio to see if you need to re balance your portfolio.  If you recently rebalanced your portfolio, and you periodically review your investment portfolio, you have already done this and you know when you will next review your situation.
I am not implying you should become a trader.  You should periodically review your portfolios to see how how your situation and other factors impact how your investment portfolio should be constructed.  The timing will be different for everyone.  Some people review the investment portfolio allocation quarterly while others rebalance semi-annually or annually.  It is important to be consistent.

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Two sides to our “Safety Net”

An article in todays The New York Times discusses the conflicted view of our safety net.
“The government safety net was created to keep Americans from abject poverty, but the poorest households no longer receive a majority of government benefits.  A secondary mission has gradually become primary: maintaining the middle class from childhood through retirement.”
The article discusses people who do not want help from the government.  They believe that people should live within their means.  These people also receive benefits from government programs such as; the earned-income tax credit, free breakfast and lunch programs in schools, disability benefits, unemployment benefits, veteran benefits and medicare.  Some of these people “…describe themselves as self-sufficient members of the American middle class and are opponents of government largess drawing more deeply on that government…”
“Politicians have expanded the safety net without a commensurate increase in revenue.”  The problem has has gotten worse because of the recent recession. 
Like Americans in general, the people discussed in the article are divided on how to proceed.  One person said “You have to help and have compassion as a people, because otherwise you have no society, but financially you can’t destroy yourself.”
“Almost half of all Americans lived in households that receive government benfits in 2010, accordingly to the Census Bureau.”
Although the article does not suggest how to proceed it does help put some of the factors that need to be considered in perspective.  Recognizing the conflicting views and emotions should lead to answer. 

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You may not realize that our brains may not give us the best answer.

Returns realized by investor are lower than the returns of the funds they own.  This was a frequent observation of the  Fidelity Magellan Fund when Peter Lynch manged it (1977-1990).  Morningstar  statistics of fund returns and of the returns realized by investors continues to find that investors’ returns are lower. 
This topic is the subject of numerous studies.  Generally investors buy when the market goes up.  Then they sell when it goes down.  The result is that securities are bought high and sold low.  The opposite of what should be done. 
Jason Zweig discusses this subect in his February 11th article in The Wall Street Journal.  He references seven surveys since 2008.  “These surveys have shown that investors’ forecasts of future returns go up after the market has risen and down after it has fallen.”  “The investing mind comes with built-in machinery that sizes up the future based on a surprisingly short sample of the past.”
He suggest some things we should do to minimize our overreaction to market fluctuations.  The first hing is to pause and reflect how you reacted to past fluctuations.  Ask your self how accurate you were.   Next you should develop some”solid reasons” the market is under or over valued.  Keep a record of reasons so that you can look back and see how accurate you were. 
He suggests that investors not rush to action based on the current activity of the market.  Investors should be patient.
I believ investors should have a plan and understand it.  Their portfolios should be constructed so that they do not have to react to the short term fluctuations of the market.  Portfolios should have enough invested that they can live for a time without having to liquidate parts of their portfolio because of market fluctuation. 
If you view the daily fluctuation as static, you realize you should not be looking at your investments too frequently.

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“Everything You Know About Peak Oils Wrong”

The “Opening Remarks” of the January 30 – February 5, 2012 edition of Bloomberg Business week raises many conflicting issues.  To give you a glimpse of why we are NOT running out of resources are the following estimated total proven oil rserves: in 1990 the estimate was 1.0 trillion barrels, in 2000 the estimate was 1.3 trillion barrels and in 2010 it was 1.5 trillion barrels.  The statistics for other materials are similar.  
Numerous reasons are given for this situation.  One reason is that industries use less of mineral resources than in the past.  New discoveries and new technologies that make  more of the resources available are other reasons.  “…the amount of energy the planet needs to generate the same amount of wealth is declining.”
“That evolution may not be happening fast enough to stave off climate change, but it suggests the possibility that we can keep improving global living standards even while reining in our collective impact on the global environment.”  
The article did not address why the news media seems to stress how fast we are running out of these resources when the facts suggest it is not an issue.  Nor does the article indicate why the media seem to only highlight the conflict over the reason(s) for climate change rather than the need to consider it in setting policies and modifying operations to consider climate change.   

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