FORBES ARTICLES BY KEN WINANS
Should Investors Trust The Trump Rally?
Published Published January 27, 2017
Maybe you love the new U.S. president, Donald J. Trump. Maybe you hate him. But regardless, you ought to be wondering what to make of the stock market rally that has taken place since his surprise election last November. Time to hang on or bail out?
Stocks rose about 6% in the first few weeks after the election. The rally stalled in mid-December but picked up again this week, nudging the Dow Jones Industrial Average past 20,000 and the S&P 500 to almost 2,300. On average the 500 large companies in the latter index are trading at around 17.5 times their estimated earnings, according to data from Birinyi Associates. This certainly is not low by historical standards.
Will a much heartier long-term rally take hold? Quite a few of our clients have called us—some dismayed, some jubilant—about what the election means for stocks. Here’s what we’re telling them: Forget President Trump’s Twitter account. Instead, focus on his tax and regulatory plans. Essentially, sit tight. Or even buy in.
As part of research for a new book, Investment Atlas II, published in November, I looked at political history since 1848 and puzzled over how presidential elections since then have influenced stocks, bonds and housing going forward. I noticed some interesting patterns. For one, this was not the first time that the U.S. electorate shocked us in a presidential vote.
Think Stocks Won't Stumble Again Soon? You're Ignoring History---And 4 Smart Moves
Published Published October 29, 2015
Talk about a wild year. The Dow Jones Industrial Average tumbled more than 16% from mid-May to August. It has since rebounded. But is there another downswing just around the corner? What should you do about it?
The buy-and-hold perma-bulls argued this time, as always, that there was nothing to do about market turmoil. The best investment move, they consistently insist, is to make no move. Their strategy, which worked in the 1980s and 1990s, also did reasonably well this time because the correction has been brief — so far.
I don’t buy it. As I’ve written here before, standing pat with your stocks doesn’t work as well as other strategies in choppy markets , particularly like the ones we’ve endured since 1999. And history tells us that market choppiness is here to stay for a while. If you plan for it, you’ll not only do better financially, you’ll also sleep better.
It’s startling to consider how many bear markets we’ve seen in the last seven years. The market tumbled way below its 200-day moving average in 2008 and 2009, of course. Smaller retreats followed in 2010, 2011 and mid-October 2014.
Built For Marketing: Why The S&P 500 And Dow Are Misleading Investors
Published Published May 8, 2015
Since the start of the year, the two major U.S. stock market indexes—the Dow Jones Industrial Average and the S&P 500—have (between them) closed at new highs nine times. But do those highs really mean the market is doing better than ever before?
Not necessarily. Human beings pick which stocks to put in these indexes, and their decisions, I fear, are being influenced by marketing. These indexes produce loads of highly profitable licensing fees paid by mutual funds, ETFs and other financial instruments linked to them. Thus the incentives—both direct and indirect—to stimulate investor interest with higher numbers are enormous.
5 Big Mistakes Investors Make When They Diversify
Published February 5, 2015
Diversification: That word is supposed to make investors feel warm and fuzzy.
A diversified investment portfolio “may provide the potential to improve [risk-adjusted] returns,” fund giant Fidelity Investments explained to its investors last summer, in an article that included several pretty pie charts showing stocks balanced against bonds, cash and foreign securities. A well-diversified portfolio, Fidelity said, would comprise, “ideally, assets whose returns move in the opposite direction.”
The carnage of 2008 and 2009 should have taught investors just how impossible that ideal is to achieve. Legions of seemingly
Alas, financial memories tend to be short-lived. And the notion that you — with the help of a financial adviser—can build a diversified portfolio that can easily ride out the next storm has come roaring back. (Fidelity, urging its clients to put 6% to 25% of their money into foreign stocks and 15% to 50% into bonds, is scarcely alone in promoting the idea.) And while I agree that one should own a mix of stocks and bonds,
3 Ways To Avoid Going Off A Stock Market Cliff With The Buy-And-Hold Herd
Published October 21, 2014
The stock market is teetering right now. The S&P 500 fell below its 200-day moving average on October 13. I think more investors — especially older ones — should sell equities if we are still below this mark on Halloween.
That advice is probably going to upset some respectable people. In a Bloomberg interview last month John Bogle — Vanguard Group’s venerable maestro of passive strategies — once again extolled the wisdom of buy-and-hold investing. Small investors who actively trade in and out of the market, Bogle said, “are going to cut their own throats.”
Bogle published his famous book, Common Sense on Mutual Funds, in 1999 — at the end of what had been a long and steady bull market. At that time, the numbers did paint a nice picture of the benefits of passive investing. Bogle pointed out, in a chapter called “On Indexing,” that the S&P 500 had “outpaced a stunning 96% of all actively managed equity funds.”
Plenty of academic research backed that view. And Bogle’s refrain — stick through the rough patches and you’ll come out OK — has become an anthem for Baby Boomers readying for retirement. But have you noticed that the other voices from the passive-investing choir become a good deal fainter when the stock market symphony hits a crescendo and starts to drop — as it has over the past few weeks?
The last decade has seen some pretty perilous falls, so it’s no wonder that people begin to choke up when they think we’re in for another round. No matter how much investors like to sing the buy-and-hold tune, it becomes a lot harder as the market heads down. In fact, recent research from Morningstar has shown that the average mutual fund generates higher returns than the individual investors in the funds themselves earn.
One reason for the discrepancy: human psychology. Few people have the discipline to execute a true buy-and-hold strategy. They get too excited and buy into late-stage bull markets and get frightened when the market falls, bailing out at what ends up to be the near bottom of a bear market.
Why Apple's New Bonds Are Less Juicy Than These 5 Junk Bonds
Published August 18, 2014
It happens every month or two. I get a slightly nervous call from one of my newer clients. Why, they ask, are we investing in high-yield bonds? Why take the risk?
Why not, they ask, put everything into “investment grade” bonds from the U.S. government? Or perhaps a corporate titan, like Apple?
Good old Apple. In April 2013 it issued a record-breaking $17 billion in bonds that were rated AA-plus—as solid as the U.S. Treasury’s.
The company reportedly turned away $30 billion in
Microsoft, Intel, GE, Attract Dividend Seeking Retirees, But Are They Bad Bets For 2014?
Published January 3, 2014
Retired investors think they need income, which often leads them to favor large-cap value stocks paying fat dividends. Except, as Investment Strategies columnist William Baldwin has repeatedly pointed out, it’s not “income” you need in retirement, but cash, and you can get cash by selling appreciated stocks. Moreover, when you’re investing through a taxable account (i.e. not an IRA or 401k), taking capital gains is more tax efficient than receiving dividends, since you can offset capital gains with capital losses and can control when you realize income.
6 Pointed Questions To Ask Before Hiring A Financial Advisor
Published September 20, 2013
Despite what you might read elsewhere about managing your own finances, it is often a good idea to get some help. It’s for roughly the same reason you hire an attorney. You don’t have the skills to handle a divorce or a property dispute.
First, though, you need to understand a little bit about the mind-bending terminology Wall Street uses to describe those who want to help you enlarge your nest egg. This basically comes down to two words: advisor and broker.
An advisor is a professional you hire to pick stocks, bonds, real
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