Eq: Large Cap
(New York)
If behavioral finance has taught us one thing, it is that losses hurt the human mind more than gains help it, and that truth might be behind why the market has been so resilient over the last year. Despite major turmoil in domestic and international politics, stocks have been rock steady and very strong, with many consistently “buying the dip”. Well Barron’s argues the reason for this behavior, and in turn, why the market has done so well, has to do with this concept—that investors have so many gains from past years that they feel like they are “playing with house money”, or that they have little to lose because they are only risking gains.
FINSUM: Evidently, research suggests that people are more likely to take risks with capital they consider “house money” than with their own money, which could explain the almost inexhaustible “buy the dip” mentality.
(New York)
The so called Dividend Aristocrats are a select group of companies that have continually raised their dividends for 25 consecutive years. This year, three new companies joined the prestigious club—Praxair, Roper Technologies, and A.O. Smith. They join a list which includes 8 companies which have raised dividends for an eye-watering 54 straight years. Those names include 3M, Coca-Cola, Johnson & Johnson, and Dover. The S&P 500 Dividend Aristocrats ETF is up 5.7% this year despite investors generally losing their appetite for dividends.
FINSUM: This group does not get talked about much these days, but what a rock solid pool of solid income stocks for capital preservation and moderate growth.
(New York)
Vanguard has been leading the race to the bottom in fund fees for years. It has also been immensely successful doing so. Until now, most fund providers had only fought back by cutting their own fees, but now they are getting more defensive. For instance, Fidelity, which is the largest 401(k) manager, will now charge clients an extra 0.05% fee for all funds invested in Vanguard products. Fidelity says that “A small number of fund families have not compensated Fidelity for certain services, and this pricing change is designed to address that disparity with the intention of providing fairness across all of our business relationships … This is about leveling the playing field”.
FINSUM: This is a good way to push back against Vanguard, but considering it is retaliatory, the fee does seem quite minor!
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(New York)
The stock market is rich, with prices sky high and valuations closing in on their historical peak. The conundrum, though, is that while there is a lot risk, there may yet still be a long way for the market to rise before falling. How to play it? The answer is the options market. Because the incredibly long period of low volatility, options prices are very low, which means if one uses a solid options strategy, there is a potentially inexpensive and effective way to play the market.
FINSUM: This seems like a smart way to play further upside, while keeping costs down, especially if you are already long stocks to a major degree and want to take some chips off the table.
(San Francisco)
In an eye-opening piece of data, Apple is about to break its own record for profitability. The company is about to report fourth quarter earnings, the first quarter which will include the new iPhone X, and revenue growth is supposed to be in the double digits for the first time in years. Apple is supposed to have sold 81m iPhones, boosting revenue 11%.
FINSUM: So what we like about these forecasts is that (if they come true) they are a profitability record and not a valuation record. They will help reinforce the stock’s price.
(New York)
Goldman Sachs has a taken a lot of hits lately. After the Financial Crisis the bank decided to go against the direction of its rivals and keep its large trading and fixed income businesses robust. The logic was that the market cycle would return and Goldman would mint money as they would have the only major division intact. The short story is that it never happened, as FICC revenues have plummeted. Goldman still sticks to their mindset on trading, which has hurt the stock. The but the truth is that the business is much more diversified than ever before and profits are rising, hitting an almost 11% return on equity in 2017. “If they can do almost an 11% return on equity in a bad year, I’ll take that”, says a major fund manager.
FINSUM: The gloom over Goldman’s weakness in fixed income is helping create a good buying opportunity for what is a thriving bank.