Category Archives: Stock

Dow 20,000? Not so Fast!

The “Trump Rally” has generated a lot of enthusiasm in the investing community.  Despite the cheerleading for the Dow to break through 20,000 before year-end, the market is meandering tantalizingly below that level.

We write this around noon on Wednesday, December 28th, and anything can happen between now and the end of the week.  There is, however, another factor in play that may keep the rally from breaking that magic number in 2016: pension fund rebalancing.

Pension funds have to have a balance between stocks and bonds to meet their risk tolerance targets and investment obligations.  That means as stocks go higher and tilt the portfolio weighting, pension funds will have to sell some of their stock holdings and buy bonds.

Jim Brown at Option Investor wrote this:

The pension fund rebalance for the end of December could see between $38 and $58 billion in equities sold according to Credit Suisse.  Stocks have rallied so much since the election the pension funds have to sell stocks and buy bonds to bring their mandatory ratios back into balance.  That suggests Thursday/Friday should have a negative bias.  Normal volume will be very low so that means even $38 billion in fund selling could have a significant impact.

This helps explain why the market seems to be stuck in neutral so far this week, and why it may stay that way until January.

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Pay No Commissions

time to invest

New clients to Korving & Company will pay no commissions on stock and ETF trades when they open an account with us between June 16th and December 31st 2016.

We use Charles Schwab as our custodian and Schwab has made this limited-time promotion to encourage new clients to open accounts with RIA’s like Korving & Company.

The promotion is called “Make the Move” and it’s designed to:
• Give you an opportunity to experience the value and benefits of working with us.
• Execute commission-free trades to offset the cost of realigning assets to one of our portfolios.

Contact us for more information.

Three benefits of a Separately Managed Account

A Separately Managed Account (SMA) is an investment account managed by a professional investment manager that can be used as an alternative to a mutual fund.  They provide diversification and professional management.  But they differ from mutual funds in that an SMA investor owns individual stocks instead shares in a fund.

Here are some of the benefits of SMAs.

  • Customization: Investors in SMAs can usually exclude certain stocks from their portfolio.  They may have an aversion to certain stocks, such as tobacco or alcohol.  Or they may have legal restrictions on owning certain stocks.  SMAs allow some customization that’s not available in mutual funds.
  • Taxes: Investors in SMAs can take advantage of tax loss harvesting at the end of the year by instructing a manager to sell certain stocks to reduce capital gains taxes. In addition, an SMA has another advantage over mutual funds in that each stock in an SMA is purchased separately.  Mutual fund investors are liable for “embedded capital gains” even if the shares were purchased before the investor bought the fund shares.
  • Transparency: You know exactly what you own and can see whenever a change is made in your account.  Mutual fund investors don’t see the individual securities they own or what changes are being made by the portfolio manager.

These are features that are attractive to certain investors.  However, they are not for everyone.  Most SMAs require minimum investments of $100,000.  That means that they are only appropriate for high net worth investors who will typically use several SMA managers for purposes of diversification.  In addition, the fees associated with SMAs are often higher than fees for mutual funds.

For more information, please contact us.

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At the close 3/3/2016

Major Stock Indexes

4:13 PM EST 3/3/2016

Last Change % CHG
DJIA 16943.90 44.58 0.26%
Nasdaq 4707.42 4.00 0.09%
S&P 500 1993.40 6.95 0.35%
Russell 2000 1075.96 10.28 0.96%
Global Dow 2241.14 22.44 1.01%
Japan: Nikkei 225 16960.16 213.61 1.28%
Stoxx Europe 600 339.42 -1.55 -0.45%
UK: FTSE 100 6130.46 -16.60 -0.27%
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Before the Bell: 3/3/2016 (Wednesday’s Close)

Markets at a Glance

Major Stock Indexes

9:27 AM EST 3/3/2016

Last Change % CHG
DJIA 16899.32 34.24 0.20%
Nasdaq 4703.42 13.83 0.29%
S&P 500 1986.45 8.10 0.41%
Russell 2000 1065.67 11.18 1.06%
Global Dow 2231.74 13.04 0.59%
Japan: Nikkei 225 16960.16 213.61 1.28%
Stoxx Europe 600 339.49 -1.48 -0.43%
UK: FTSE 100 6141.54 -5.52 -0.09%

Before the Bell: 2/26/2016 (Thursday’s Close)

 

Major Stock Indexes

9:15 AM EST 2/26/2016

Last Change % CHG
DJIA 16697.29 212.30 1.29%
Nasdaq 4582.20 39.60 0.87%
S&P 500 1951.70 21.90 1.13%
Russell 2000 1031.58 9.50 0.93%
Global Dow 2173.29 10.51 0.49%
Japan: Nikkei 225 16188.41 48.07 0.30%
Stoxx Europe 600 332.06 5.52 1.69%
UK: FTSE 100 6092.74 79.93 1.33%

 

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Up and down Wall Street

As we write this, the stock market is up.  After the volatility of the past two months we decided to look at the Dow Jones Industrial Average stocks to see how that index fared.

Of the 30 stocks in the DJIA, year-to-date nine stocks are up and twenty-one are down.

The five biggest winners (as of this moment) are

  1. Wal-Mart +11%
  2. Verizon +11%
  3. 3M +5%
  4. Exxon +4%
  5. Procter & Gamble +3%

The five biggest losers are

  1. American Express -21%
  2. Boeing – 19%
  3. Goldman Sachs – 18%
  4. Intel -15%
  5. JP Morgan -14%

Please note that this is not a recommendation, suggestion of solicitation of any kind.  We just thought it was interesting to see which stocks were affecting the DJIA so far this year.

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A Reflection on Risk

The beginning of 2016 was, we are told, the worst first week of the year in the history of the stock market. How bad was it? The DJIA was down -6.13%. While there’s no denying that it was an incredibly unpleasant start to the year, in a broader sense the magnitude of the decline is not unprecedented when you consider that since 1997 we have had 6 single-day drops that have been larger than that. In fact, during our own investment career we’ve experienced much worse. Some of you will remember October 19th, 1987, the day that the market dropped 22.6%. In one day. Within 14 months of that day, the market had recouped all of its losses, and then went on to far greater heights (remember the bull markets of the 1990s?).

However, extreme market volatility usually causes people – especially those who have been complacent, or who have not paid attention to the amount of risk they are taking – to let emotion take over and cloud their thinking. The price of oil has plummeted in the last year, and while that has been great news at the pump, it has caused the majority of oil-related stocks to decline. Railroad stocks have come under pressure as coal shipments have declined. Technology stocks have been affected by a cutback in production of Apple phones.

We are not in the business of predicting the future. However, we will say that we have faith in the strength of free enterprise to overcome economic obstacles. We are in the business of creating diversified portfolios designed to reduce risk so that whatever market conditions we may face, we will be able to take advantage of market advances and cushion market declines.

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Warren Buffett lost money this year.

Even the savviest investor can have a bad year. Buffett’s Berkshire Hathaway is down over 11% in 2015.

The reason for the decline is the declining price of oil and other commodities. Berkshire Hathaway has a big investment in railroads that make much of their money hauling commodities such as oil and coal.

It also has big positions in American Express and IBM which declined 24% and 13% respectively this year.

If you broke even this year you beat the “Wizard of Omaha.”

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Bull and Bear Markets – A History

Following the “Great Recession” of 2008 not a day goes by without a prediction of another Bear Market. It’s often useful to remind ourselves of market history. While we need to remember that past performance is no guarantee of future results, we received the this fascinating chart which shows the historical performance of the S&P 500 stock market index since 1926. It’s quite dramatic.

Bull and Bear Markets

Bull and Bear markets follow each other.

What’s a Bear Market? It’s often defined as a drop of at least 20% from the previous high.

A Bull Market is measured from the point where the market stops dropping until it reaches a new peak.

What’s obvious from the chart is that historically, Bear Markets are relatively short and Bull Markets last a much longer time. A large part of this is driven by investor psychology. When markets begin to decline, the typical investor becomes concerned. As the value of their portfolio continues to go down they reach a point where fear of further losses forces them to sell. This selling contributes to a further decline. However, at some point all the fearful investors are out of the market. The decline stops, setting the stage for the next Bull Market.

  • The average Bull Market period lasted 8.8 years with an average cumulative total return of 461%.
  • The average Bear Market period lasted 1.3 years with an average cumulative loss of -41%.

Of course retirees on a fixed income have to be cautious because a major loss of retirement assets, even if a Bear Market is relatively short, can have a major impact on their lifestyle. For this reason it’s important to create portfolios that are going to participate in Bull Markets but are also robust enough to survive Bear Markets.

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