Author Archives: Matt@DearMrMarket.com

Why You Might want to “Sell in May and go Away”…in April

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Sell in May and Go Away?

Dear Mr. Market:

Are you finally about to let off some steam and come back down? Everybody has been talking about this market correction but until last week you’ve been awfully stubborn and just keep inching higher. It’s now April 8th, so albeit a few weeks early, can we at least ask you about this whole “Sell in May and Go Away” concept?

For those that may not be aware of the old Wall Street adage, “sell in May and go away”, it is a belief that the market performs better in the months of November to April. Those that follow this strategy ideally sell their stocks in May and stay in cash until about Halloween. Does this have any merit? We wrote about this last year and wondered if it was once again data mining and essentially a statistical fluke. Analysis by Ben Bouman and Sven Jacobsen (2002) actually confirmed about 10% percentage points of stronger performance in 36 of the 37 markets they studied for the November-April time period. These results were more pronounced in the European economies. Other studies also point to the Dow Jones averaging about a gain of 7.5% in the Winter months while the Summer months lost 0.1%.

There are a number of factors on why this trend seems to have been fairly reliable dating all the way back to 1950. Year-end bonuses and the proverbial “Santa Claus rally” can sometimes help bump the markets up in the Winter months. Barring any unexpected negative catalyst and a typically mild Spring, the “summer doldrums” set in after all the first-quarter results are announced. Like it or not the extensive media coverage can really amplify an earnings miss or a hit and it’s not inconceivable to see a company drop or rise by 20% during this time. Today will bring us Alcoa Inc.’s results and officially kick off the earnings season. Continue reading →

Making Cents of Investing…Really!?

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Dear Mr. Market:

Making centsAs we close out the first quarter of 2013 investors are intrigued with impressive returns on top of the double-digit results posted for 2012.  Throughout the first quarter mutual funds set records for the amount of money invested in them.  The sad truth is that while investors watch the market continue this upward trend, breaking records in the process, the average investor is not seeing the same results in their accounts. In a recent report published by Goldman Sachs, nearly two thirds of the actively managed mutual funds underperformed the broad markets (S&P 1500 – consisting of large, mid and small cap stocks) last year.  While only a third of the funds beat the market last year the results are even more disappointing in 2011 as 84% of the funds couldn’t beat the broad markets.  While the so-called ‘experts’ have not posted impressive results what is even more shocking is what investors are paying these underperforming managers on a yearly basis.

According to ‘The Motley Fools’ the average actively managed equity fund charges an expense ratio of approximately 1.5%.   If you sit back and really think about this the numbers are eye opening.  If you invested $10,000, into an average actively managed fund, you paid $150 a year every year whether the fund performed well or underperformed (like the majority of them did the last several years).  This is like paying a private tutor to teach your children and being satisfied when they come home with straight “D’s” on their report card the majority of the time. Continue reading →

Is the Stock Market Headed Higher or Lower?

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Dear Mr. Market,

tightropeHere we are…now what? You reached an all-time high this week with the S&P 500 breaking the previous record of 1,565 set in October of 2007. Congratulations! Although you’ve taken today off for Good Friday, here we sit at 1,569 and everyone is wondering …”what’s next?”.  Will you break out to even higher levels or is the expected correction that everyone is talking about becoming more and more of a given?

We ask you these questions because it’s times like this when many investors make critical decisions. Passing historic levels in the stock market can be more than just a headline. For some it’s a time of reflection and it allows the investor to see where they’ve come from since the last bear market or how they’ve done since the last time the market was this high. Breaking new highs shouldn’t be the trigger that tells an investor to reassess his or her strategy though.

Since nobody we know has a crystal ball, what we really want to know is how most investors are feeling in light of reaching these levels. Humans have a natural fear of heights. As a market gathers steam and prices rise most investors welcome that and typically “feel” good. A different feeling then creeps in when new levels are reached. Investors then believe with each new high that a reversion to the mean will occur and the market is bound to correct. Sure, the “writing is on the wall” and just about everyone we speak to thinks (feels) that the market will correct soon. This opinion is held the most by those that either have not participated in the recent market run-up or those that perhaps are trying to sell a different vehicle. Continue reading →

How Did Mr. Market Fill Out his NCAA Bracket?

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Dear Mr. Market:

We understand you’re likely quite busy the past couple of days with some of the whip saw action in the markets. Maybe all the debt crisis news with Cyprus has you in a sour mood? Perhaps you haven’t had time to look at your NCAA brackets? What if we asked you to choose Indiana or Intel? Now are you interested?

basketball on cashMarch Madness is here! We’re proud to roll out another year of our spin on March Madness. How does a collegiate basketball tournament that captures the majority of America tie into the investment world? Well, aside from the massive amounts of money and time that gets allocated to this event, there are some connections worth looking at. For the past few years we take this time to pontificate which asset classes and what specific stocks may outperform their respective benchmarks over the next year. We happen to be avid sports and hoops fans, but as financial advisors we’re joining both passions to attempt to connect some dots. Continue reading →