Category: Investment Strategy


Your Investing Strategy Right Now

Filed Under: Investment Strategy by Bill — Comments Off
July 5, 2011

It’s a crazy time right now in the stock market and everyone is talking about a possible correction.  There are two sides to every story and there are two sides to this one as well.  In any case, your investment strategies need to be ready for the inevitabilities of either situation.  It’s a good time to be nimble in the markets right now.  I would also question the traditional thinking behind retirement planning and stock investments.

There are two schools of investing thought.  One says that we are current experiencing a temporary dip in a otherwise long term rally and bull market.  The bears are saying that this is a correction, and it will be a huge one when all is said and done.  Both sides have their arguments, and both sides are very valid.  If you are doing online stock market trading, you can play off of the bulls and bears for profit.

The bulls are saying the recovery, albeit slow, is real and will be sustained.  Even those who don’t think the Fed’s policies will work over the long run, they don’t think they will give up on this economy.  In essence, Ben won’t let the financial markets fail and he won’t be satisfied until there is real job growth and creation in the economy.  This is a mandate from his boss.

The other side says that the government policies have failed and there is too much risk in the world for the markets to continue to rally.  They point to the very slow recovery and potential double dip in the housing market.  They also point to the serious events in Europe with various sovereign states in crisis over their debt.

Then there is the actual market and what they are saying.  Gold is shooting up again, pointing to the fact that the market actually may be nervous about what’s going on.  But on the other hand, the VIX, which is an indicator of volatility in the stock market, is relatively low given the fact that there is a lot of fear and bear talk going on.

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Natural Gas Prices and Stock Valuations

Filed Under: Commodities by Bill — Comments Off
July 5, 2011

The gas industry is really dependent on the prices of the commodity itself.  This is especially true for upstream companies that do the exploration, drilling and production of this fossil fuel.  That is why if you are investing in any natural gas ETF funds or individual stocks, you need to be watching the commodities market for price volatility.

There are a few things happening right now that could make or break any of the natural gas companies in this sector.  Most of it has to do with the commodity prices.  I would say that until the price settles into a comfortable range, good stocks to invest in for this sector are those diversified in oil as well.

Gas prices are pretty cheap right now.  The main driver is supply.  A new drilling method called hydro-fracturing is allowing a dramatic increase in production of domestic supply.  That has been driving the prices down for some time.

The problem may be that this new drilling technique is very expensive.  That may also mean that with gas prices down, margins may be very small.

There is no doubt in my mind that this is going to change.  I believe the demand for natural gas is going to continue to rise.  As more and more power generation seeks to use this fuel that is cleaner than coal and safer than nuclear, I think prices will start to rise.

There is a movement to start using gas more than crude oil as well.  The main reasons are because it is cleaner burning and it can be found domestically.  That means we can clean up the air, mitigate climate change and get ourselves off of dependence on foreign oil all at the same time.

I think this migration to gas will continue for years to come.  That will lead to higher prices, which will help this sector.  But until that happens, many companies in this industry are at risk of not surviving the low margins.

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Small Cap Value Funds – Good Investing Strategies

Filed Under: Mutual FUnds by Bill — Comments Off
July 3, 2011

Recent research is starting to show, based on historical data, which may be the best investments to go into.  One of those may be small cap funds with a focus on value.  I would see a trend going in this direction as the economy starts to recover and people are more inclined to risk assets like stocks.

These are generally known as growth mutual funds because they invest in small caps.  It is commonly known that these market cap companies tend to offer the best changes of high returns.  It is also well known that volatility is also more likely.  It’s the classic scenario where higher risks give you a better change at higher returns as well as lower returns.

You can get into an actively managed small cap fund if you’d like.  This is where a money manager or a team of analysts go out and pick individual stocks in this category.  They will do their homework on each company.  They will examine their leadership, analyze their financial statements, evaluate the competitive landscape and project their growth prospects.

These funds tend to have loads or at least higher expense ratios, both of which translate into higher management fees.  At the same time, there is no evidence to suggest that you get a better chance at beating the markets this way either.

The other route your can go is to go the passive investing strategy.  These funds will track small cap indexes, most famously of which is the Russell 2000.  You don’t have the overhead of paying money managers like with traditional mutual funds.  That means a lower management fee on your end.

The other big advantage is that it is highly diversified among the small cap category.  It tracks 2000 stocks so you are spreading your risk pretty wide.  It still has risks and volatility, but more certainty than a fund where you have no idea what they are investing your money in.

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Exchange-Traded Funds – a Few Reasons Every Portfolio Should Have Them

Filed Under: Mutual FUnds by Bill — Comments Off
June 24, 2011

For quite a few years now, exchange-traded funds (ETFs) have been a favorite product of both individual and institutional investors. Their strong growth in market capitalization and sales numbers since their original inception in the U.S. in 1993 has been astounding, especially in recent years. This alone should be sufficient to show that there must be something to ETFs that makes them a gain for almost every portfolio. Let us take a look what the reasons are for investing in these instruments.

Exchange-traded funds offer a great way to diversify your investments. As is well known, diversification is a key strategy to lower the overall risk inherent in an investment portfolio. ETFs make it easy to invest in whole markets at a time, even those which are usually inaccessible to small individual investors. For example, not only are ETFs available for the US equity market, but also for Asian stocks like a Nikkei ETF and for specific industrial sectors. Even for niche markets like the nuclear industry, there exists a uranium ETF which tracks the development of this market.

The management costs of an exchange-traded fund are much lower than for comparable mutual funds. This is mainly due to their passive approach to investing, meaning that ETFs simply try to replicate the performance of their underlying index without the need for elaborate management strategies. In addition to the fact that ETFs have a much lower need for trading activity than mutual funds because of their exchange-traded nature, this leads to an expense ratio typically between 0.5% and 1.0%.

Finally, the internal tax efficiency of ETFs is better due to the above mentioned reduced need for trading activity. As less taxable transactions occur, a higher proportion of the invested funds can be retained within the ETF’s holdings.

As these arguments show, ETFs have become the most popular exchange-traded product for a reason. Their ongoing success story is likely to stay that way in the coming years, making especially large, well-established ETFs a perfect basis for any long-term investment strategy.

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