I wrote a post in February 2006 in which I argued that the S&P 500 was undervalued. Since then, the S&P 500 has risen from about 1283 to 1422, a return of 10.83%, excluding dividends. This is a strong gain and I think that the S&P 500 has further to go. Relative to bonds, the S&P 500 still appears to be undervalued.
According to Standard & Poor's, the projected reported earnings through 12/31/07 for the sum of the components of the S&P 500 is about $89.10/share. As discussed above, the S&P 500 index currently trades at about 1422. Accordingly, the forward P/E ratio of the S&P 500 index is about 15.96* (1422/$89.10). This is slightly higher than the historical P/E ratio of around 14-15. However, bonds are still more richly valued than their historical averages. Other asset classes such as real estate and commodities are also richly valued right now and have been for several years. As I wrote last February, it seems inevitable that stocks will eventually catch up to the performance of these other asset classes.
Stocks have been weighed down over the past couple years in large part due to high energy prices and a FED that had been steadily raising short-term interest rates. However, consumer price inflation is still low and bonds are expensive relative to historical averages. The yield on the 10-yr US bond is currently about 4.88%. The earnings yield on the S&P 500 based on estimated 2007 earnings* is about 6.27% (i.e., the inverse of the 15.96 P/E ratio). The earnings yield on the S&P 500 is therefore about 1.45% higher than the 10-yr bond yield. This is still a large disparity and will probably shrink over the next few years as the S&P 500 outperforms the 10-yr bond.
2007 should continue to be a good year for the S&P 500. The S&P 500 probably won't increase in value every month, but even after accounting for a pullback or two this should be a good year nevertheless.
* I used estimated "as reported" earnings in calculating the 2007 estimated earnings. Many stock market analysts use estimated "operating earnings" in calculating forward P/E ratios. The "as reported" earnings account for miscellaneous supposedly non-recurring "one-time" charges and expenses deducted from operating earnings. The "as reported" earnings provide a more realistic estimate of earnings because such miscellaneous non-recurring "one-time" charges and expenses occur every single year. It seems disingenuous to not factor them into the calculation of the forward P/E ratio.
Saturday, January 27, 2007
Sunday, January 21, 2007
S&P 500 Dividends (Updated through January 2007)
In February 2006 I wrote a post about S&P 500 dividends. I've decided it is time to update the chart to include dividend information for the full 2006 year. The dividend information is available at the Standard & Poor's website.
The chart shown below (click on the chart to see a larger image) illustrates dividend information for the S&P 500 from 1988-2006. As shown, the dividends paid by the S&P 500 component companies increased from $9.73 in 1988 to $24.88 in 2005. That works out to a total increase of 155.7% and an average annual increase of 5.354% in the dividend yield. Considering that this time period includes the horrible bear market from 2000 to 2002 when the S&P 500 lost about 50% of its value, I would say that the annual increase is impressive.
As shown in the chart below, the annual % increase of dividends has been increasing very rapidly since 2002. That is due both to the strong corporate profits over the past few years and the dividend tax decrease that Congress passed in 2003. According to Standard & Poor's, the dividends are projected to increase to $27.35 for 2007, a 9.928% increase over 2006.
I still anticipate large % increases in the dividend rate in the coming years. As I mentioned in my 2006 post on S&P 500 dividends, companies are going to continue to be pressured to continue raising dividends due to the combination of favorable tax treatment and the fact that Baby Boomers are nearing retirement age and are going to want extra dividend income and will pressure companies to keep raising dividends. The great benefit of dividends is that they provide investors with a return without forcing the investors to sell at inopportune moments to realize these returns.
***An updated version of this chart containing data from 1977-2014 may be found in this post.
The chart shown below (click on the chart to see a larger image) illustrates dividend information for the S&P 500 from 1988-2006. As shown, the dividends paid by the S&P 500 component companies increased from $9.73 in 1988 to $24.88 in 2005. That works out to a total increase of 155.7% and an average annual increase of 5.354% in the dividend yield. Considering that this time period includes the horrible bear market from 2000 to 2002 when the S&P 500 lost about 50% of its value, I would say that the annual increase is impressive.
As shown in the chart below, the annual % increase of dividends has been increasing very rapidly since 2002. That is due both to the strong corporate profits over the past few years and the dividend tax decrease that Congress passed in 2003. According to Standard & Poor's, the dividends are projected to increase to $27.35 for 2007, a 9.928% increase over 2006.
I still anticipate large % increases in the dividend rate in the coming years. As I mentioned in my 2006 post on S&P 500 dividends, companies are going to continue to be pressured to continue raising dividends due to the combination of favorable tax treatment and the fact that Baby Boomers are nearing retirement age and are going to want extra dividend income and will pressure companies to keep raising dividends. The great benefit of dividends is that they provide investors with a return without forcing the investors to sell at inopportune moments to realize these returns.
***An updated version of this chart containing data from 1977-2014 may be found in this post.
Wednesday, January 17, 2007
1980 - 2006 Stock Market Returns for Various Indices
I often read articles written by stock market pundits who argue that now is the time for growth stocks to outperform value stocks. Value stocks have trounced growth stocks since 2000 and it's time for the growth to finally beat the value stocks again, or at least that is what we are told. It is true that investment styles are cyclical, but I really question whether an investor would be better off listening to the pundits and trying to time such market reversals of fortune.
While sleuthing around on the Internet I came across some old versions of the Callan Periodic Table of Investment Returns that I have posted previously. I entered all of the data I found from 1980-2006 into a spreadsheet for small cap indices (Russell 2000, Russell 2000 Value, and Russell 2000 Growth), large cap indices (S&P 500, S&P/Citi 500 Value*, and S&P/Citi 500 Growth*), a broad-based foreign stock index(Morgan Stanley Capital International Index for the developed stock markets of Europe, Australasia, and the Far East ("MSCI EAFE index")), and an index of bonds (Lehman Brothers Aggregate Bond Index ("LB Agg.")).
As shown in the chart below (click on the image for a larger view), the Russell 2000 Value index has outperformed all other investment styles over the time frame, returning 4522.32%, which is an average annual return of 15.26%. The Russell 2000 Growth Index was the worst performer, on the other hand, providing a total return of just 937.98% over the time period, or about 9.05% per year. The formidable return of the Russell 2000 Value index is not surprising, considering that Small Cap Value stocks have routinely outperformed other investment styles over long periods of time as I have previously discussed.
What is surprising is just how poor the returns were for the Small Cap Growth stocks in the Russell 2000 Growth index - for all of the risk involved, investors are not adequately compensated, seeing as how the LB Agg. Index returned 948.45% over the time period, an average annual return of about 9.09% with far less risk.
Another thing I found surprising is that the S&P 500 Index provided much larger returns that the overall Russell 2000 Index. Small cap stocks absolutely trounced large caps during the 1970s, so I guess this is to be expected.
An additional item of interest is the return of the MSCI EAFE Index versus the S&P 500. As shown, the MSCI EAFE Index returned 1849.57%, or an average annual return of 11.63% during the time period. The S&P 500 provided much larger returns - a total return of 2802.82%, or an average of 13.29% between 1980 and 2006. I expect that the MSCI EAFE Index will catch up to the S&P 500's performance in the future, given that the U.S. runs an enormous trade deficit with the rest of the world and the U.S. dollar will inevitably weaken.
* The older charts I found provide data for the S&P/Barra 500 Value Index and the S&P/Barra 500 Value Index, instead of the S&P/Citi 500 Value and Growth Indices, respectively, during the time period from 1980-1986. I'm not sure whether the older S&P/Barra indices are substantially the same as the S&P/Citi indices, but they appear to be so.
*** Edit - January 21, 2014 ***
I have updated this chart with results through 2013.
While sleuthing around on the Internet I came across some old versions of the Callan Periodic Table of Investment Returns that I have posted previously. I entered all of the data I found from 1980-2006 into a spreadsheet for small cap indices (Russell 2000, Russell 2000 Value, and Russell 2000 Growth), large cap indices (S&P 500, S&P/Citi 500 Value*, and S&P/Citi 500 Growth*), a broad-based foreign stock index(Morgan Stanley Capital International Index for the developed stock markets of Europe, Australasia, and the Far East ("MSCI EAFE index")), and an index of bonds (Lehman Brothers Aggregate Bond Index ("LB Agg.")).
As shown in the chart below (click on the image for a larger view), the Russell 2000 Value index has outperformed all other investment styles over the time frame, returning 4522.32%, which is an average annual return of 15.26%. The Russell 2000 Growth Index was the worst performer, on the other hand, providing a total return of just 937.98% over the time period, or about 9.05% per year. The formidable return of the Russell 2000 Value index is not surprising, considering that Small Cap Value stocks have routinely outperformed other investment styles over long periods of time as I have previously discussed.
What is surprising is just how poor the returns were for the Small Cap Growth stocks in the Russell 2000 Growth index - for all of the risk involved, investors are not adequately compensated, seeing as how the LB Agg. Index returned 948.45% over the time period, an average annual return of about 9.09% with far less risk.
Another thing I found surprising is that the S&P 500 Index provided much larger returns that the overall Russell 2000 Index. Small cap stocks absolutely trounced large caps during the 1970s, so I guess this is to be expected.
An additional item of interest is the return of the MSCI EAFE Index versus the S&P 500. As shown, the MSCI EAFE Index returned 1849.57%, or an average annual return of 11.63% during the time period. The S&P 500 provided much larger returns - a total return of 2802.82%, or an average of 13.29% between 1980 and 2006. I expect that the MSCI EAFE Index will catch up to the S&P 500's performance in the future, given that the U.S. runs an enormous trade deficit with the rest of the world and the U.S. dollar will inevitably weaken.
* The older charts I found provide data for the S&P/Barra 500 Value Index and the S&P/Barra 500 Value Index, instead of the S&P/Citi 500 Value and Growth Indices, respectively, during the time period from 1980-1986. I'm not sure whether the older S&P/Barra indices are substantially the same as the S&P/Citi indices, but they appear to be so.
*** Edit - January 21, 2014 ***
I have updated this chart with results through 2013.
Friday, January 12, 2007
Updated "Periodic Table" of Equity Style Investment Returns Through 2006
Posted below is an updated version of the "Periodic Table" of equity style investment returns from 1987-2006. (Click on the image below to see a larger version of the Periodic Table.) This chart was originally posted on the website for Callan Associates.
*If the image is fuzzy, you can see a .pdf of the image here.
I have written a new post with results from 1989-2008.
*If the image is fuzzy, you can see a .pdf of the image here.
I have written a new post with results from 1989-2008.
Thursday, January 04, 2007
2006 Global Stock Market Returns
The Wall Street Journal Online has an interesting article about 2006 global stock market returns. The U.S. had respectable returns of about 13.86% during 2006, but this pales in comparison to the returns of the stock markets of many other countries, including the BRIC countries of Brazil, Russia, India, and China, as shown in the chart below:
Wednesday, January 03, 2007
The First BRIC ETF Was Launched In September
In 2003 Goldman Sachs published a report on the top emerging markets for the next 50 years - Brazil, Russia, India, and China (collectively known as "BRIC"). In the report Goldman Sachs projected that the BRIC countries will grow much faster than any of the current developed markets (including the U.S., Japan, Germany, the U.K., Italy, and France) and the local currencies of the BRIC countries will appreciate some 100-300% against those of the developed markets.
I have been waiting for an ETF to be introduced that invests only in the BRIC countries. Unfortunately there was none until very recently. The best that a small investor could do was to purchase a broad-based emerging markets ETF such as the iShares MSCI Emerging Markets Index Fund ("EEM") that invests in the BRIC countries as well as many other countries, including South Korea and Taiwan. Alternatively, one could also invest in country-specific ETFs and closed-end funds, such as the iShares MSCI Brazil Index Fund ("EWZ"), iShares FTSE/Xinhua China 25 Index Fund ("FXI"), Templeton Russia & East European Fund ("TRF"), and Morgan Stanley India Investment Fund ("IIF").
Luckily, the first BRIC ETF has finally been introduced. During mid-September 2006, the Claymore BRIC ETF was unveiled. The Claymore BRIC ETF invests solely in the BRIC countries and tracks the Bank of New York's BRIC Select ADR Index. Unfortunately, the BRIC ETF does not invest evenly in the BRIC countries - about 48% of the assets are in Brazil, 31% in China, close to 14% in India, but just 6% in Russia. Moreover, the ETF's assets are highly concentrated among a handful of stocks - the ETF owns both common and preferred shares of the Brazilian company Petroleo Brasileiro (symbol: PBR) totaling 15.53% of the ETF's net assets.
Although I am glad to finally see a BRIC ETF, I'm going to sit on the sidelines. I don't like the uneven investment in the BRIC countries, with the investment in Brazilian companies being nearly eight times as large as the investment in Russian stocks. For the time being, I will continue to invest in EEM and the country-specific ETFs and country-specific closed-end funds I listed above.
I have been waiting for an ETF to be introduced that invests only in the BRIC countries. Unfortunately there was none until very recently. The best that a small investor could do was to purchase a broad-based emerging markets ETF such as the iShares MSCI Emerging Markets Index Fund ("EEM") that invests in the BRIC countries as well as many other countries, including South Korea and Taiwan. Alternatively, one could also invest in country-specific ETFs and closed-end funds, such as the iShares MSCI Brazil Index Fund ("EWZ"), iShares FTSE/Xinhua China 25 Index Fund ("FXI"), Templeton Russia & East European Fund ("TRF"), and Morgan Stanley India Investment Fund ("IIF").
Luckily, the first BRIC ETF has finally been introduced. During mid-September 2006, the Claymore BRIC ETF was unveiled. The Claymore BRIC ETF invests solely in the BRIC countries and tracks the Bank of New York's BRIC Select ADR Index. Unfortunately, the BRIC ETF does not invest evenly in the BRIC countries - about 48% of the assets are in Brazil, 31% in China, close to 14% in India, but just 6% in Russia. Moreover, the ETF's assets are highly concentrated among a handful of stocks - the ETF owns both common and preferred shares of the Brazilian company Petroleo Brasileiro (symbol: PBR) totaling 15.53% of the ETF's net assets.
Although I am glad to finally see a BRIC ETF, I'm going to sit on the sidelines. I don't like the uneven investment in the BRIC countries, with the investment in Brazilian companies being nearly eight times as large as the investment in Russian stocks. For the time being, I will continue to invest in EEM and the country-specific ETFs and country-specific closed-end funds I listed above.
Monday, January 01, 2007
December 2006 Returns For My Model Long-Term Portfolio
December was yet another solid month for my Hypothetical Model Portfolio. As of the market close on December 29, 2006, the Hypothetical Model Portfolio* increased in value by $2684.34, or about 2.28% during the month of December. The Hypothetical Model Portfolio closed up $20,496.90 in 2006, a gain of about 20.50%, as shown on the table below (click for a larger image of the table).
Emerging markets led the way in December and were the overall winners in my portfolio for the 2006-year. The Templeton Russia closed-end fund (TRF) rose over 24% in December and finished 2006 up a whopping 85%, and the iShares Emerging Markets ETF (EEM) returned about 5.4%, finishing the year up just over 31%. My third-best performer in 2006 was the Vanguard Developed Markets Index mutual fund (VDMIX), which rose about 2.9% in December and finished 2006 up about 25.4%. Dividend-paying stocks also performed well during December, with S&P 500 Financial components ETF (XLF) returning about 3.6% and the iShares Dow Jones U.S. Select Dividend Index Fund (DVY) rising about 2.1%.
As discussed above, the foreign holdings (i.e., TRF, EEM, and VDMIX) powered the portfolio during 2006. The only real dog of the portfolio was the Nasdaq 100 ETF (QQQQ), which rose just under 7% during 2006, trailing the overall performance of the portfolio by about 13.5%.
Nine of the ten holdings in the portfolio paid distributions during December. TRF was the only holding to not pay a distribution. However, distributions were deducted from the share price for TRF at the end of December. The TRF distributions will be paid out during the middle of January. Because the distribution is large (greater than $500), I have included the January 2007 TRF distributions in the December 2006 returns for TRF and labeled them "pending distributions."
Regarding the rest of the holdings, the dividends from mutual fund holdings were reinvested, but the dividends from the ETFs were not reinvested- they were accumulated as "CASH" on the performance table below, for the reasons set forth in a previous post. The Vanguard S&P 500 Index fund (VFINX) paid a dividend of $0.65/share (a total of $126.04), which was reinvested on December 27th to purchase an additional 0.966 shares at a price of $130.43/share. The Vanguard Mid Cap Index Fund (VIMSX) paid a dividend of $0.247/share (a total of $220.03), which was reinvested on December 22nd to purchase an additional 11.135 shares at a price of $19.76/share. The Vanguard Developed Markets Index mutual fund (VDMIX) paid a dividend of $0.299/share and a short-term capital gain of $0.005/share (a total of $385.70), which was reinvested on December 29th to purchase an additional 30.563 shares at a price of $12.62/share. The Vanguard Small Cap Value Index (VISVX) paid a dividend of $0.30/share (a total of $249.02), which was reinvested on December 22nd to purchase an additional 14.709 shares at a price of $16.93/share. The Vanguard Small Cap Index (NAESX) paid a dividend of $0.353/share (a total of $149.53), which was reinvested on December 22nd to purchase an additional 4.604 shares at a price of $32.48/share.
The ETFs listed below each paid a distribution that was invested in "CASH" as shown in the chart below. EEM paid a dividend of $1.57251/share (a total of $143.10) on December 29th. QQQQ paid a dividend of $0.054/share (a total of $8.32) on December 29th. DVY paid a dividend of $0.52572/share (a total of $42.06) on December 27th. XLF paid a dividend of $0.28103/share (a total of $22.20) on December 27th. Finally, a distribution of $8.8489 was deducted from the TRF share price on December 27th and will be paid on January 16, 2006.
My Hypothetical Model Portfolio beat the S&P 500 index by about 5 percentage points during 2006. This is an impressive performance. I concede that the Hypothetical Model Portfolio will underperform the S&P 500 index from time-to-time, but it should outperform the S&P 500 index over the long-term. For the 2007 investing year, I intend to add another $25,000 to the Hypothetical Model Portfolio and invest this money and the money listed as "CASH" below according to the same allocations as were outlined in my original post in which I introduced my Hypothetical Model Portfolio. I will discuss the purchase of new shares in a subsequent post.
*The Hypothetical Model Portfolio was hypothetically created with an investment of $100,000 with investments made as of the closing values on December 30, 2005. The reason why the total cost in the chart is greater than $100,000 is because the total cost accounts for the value of dividends reinvested into the mutual funds in the portfolio.
November 2006 Returns
Emerging markets led the way in December and were the overall winners in my portfolio for the 2006-year. The Templeton Russia closed-end fund (TRF) rose over 24% in December and finished 2006 up a whopping 85%, and the iShares Emerging Markets ETF (EEM) returned about 5.4%, finishing the year up just over 31%. My third-best performer in 2006 was the Vanguard Developed Markets Index mutual fund (VDMIX), which rose about 2.9% in December and finished 2006 up about 25.4%. Dividend-paying stocks also performed well during December, with S&P 500 Financial components ETF (XLF) returning about 3.6% and the iShares Dow Jones U.S. Select Dividend Index Fund (DVY) rising about 2.1%.
As discussed above, the foreign holdings (i.e., TRF, EEM, and VDMIX) powered the portfolio during 2006. The only real dog of the portfolio was the Nasdaq 100 ETF (QQQQ), which rose just under 7% during 2006, trailing the overall performance of the portfolio by about 13.5%.
Nine of the ten holdings in the portfolio paid distributions during December. TRF was the only holding to not pay a distribution. However, distributions were deducted from the share price for TRF at the end of December. The TRF distributions will be paid out during the middle of January. Because the distribution is large (greater than $500), I have included the January 2007 TRF distributions in the December 2006 returns for TRF and labeled them "pending distributions."
Regarding the rest of the holdings, the dividends from mutual fund holdings were reinvested, but the dividends from the ETFs were not reinvested- they were accumulated as "CASH" on the performance table below, for the reasons set forth in a previous post. The Vanguard S&P 500 Index fund (VFINX) paid a dividend of $0.65/share (a total of $126.04), which was reinvested on December 27th to purchase an additional 0.966 shares at a price of $130.43/share. The Vanguard Mid Cap Index Fund (VIMSX) paid a dividend of $0.247/share (a total of $220.03), which was reinvested on December 22nd to purchase an additional 11.135 shares at a price of $19.76/share. The Vanguard Developed Markets Index mutual fund (VDMIX) paid a dividend of $0.299/share and a short-term capital gain of $0.005/share (a total of $385.70), which was reinvested on December 29th to purchase an additional 30.563 shares at a price of $12.62/share. The Vanguard Small Cap Value Index (VISVX) paid a dividend of $0.30/share (a total of $249.02), which was reinvested on December 22nd to purchase an additional 14.709 shares at a price of $16.93/share. The Vanguard Small Cap Index (NAESX) paid a dividend of $0.353/share (a total of $149.53), which was reinvested on December 22nd to purchase an additional 4.604 shares at a price of $32.48/share.
The ETFs listed below each paid a distribution that was invested in "CASH" as shown in the chart below. EEM paid a dividend of $1.57251/share (a total of $143.10) on December 29th. QQQQ paid a dividend of $0.054/share (a total of $8.32) on December 29th. DVY paid a dividend of $0.52572/share (a total of $42.06) on December 27th. XLF paid a dividend of $0.28103/share (a total of $22.20) on December 27th. Finally, a distribution of $8.8489 was deducted from the TRF share price on December 27th and will be paid on January 16, 2006.
My Hypothetical Model Portfolio beat the S&P 500 index by about 5 percentage points during 2006. This is an impressive performance. I concede that the Hypothetical Model Portfolio will underperform the S&P 500 index from time-to-time, but it should outperform the S&P 500 index over the long-term. For the 2007 investing year, I intend to add another $25,000 to the Hypothetical Model Portfolio and invest this money and the money listed as "CASH" below according to the same allocations as were outlined in my original post in which I introduced my Hypothetical Model Portfolio. I will discuss the purchase of new shares in a subsequent post.
*The Hypothetical Model Portfolio was hypothetically created with an investment of $100,000 with investments made as of the closing values on December 30, 2005. The reason why the total cost in the chart is greater than $100,000 is because the total cost accounts for the value of dividends reinvested into the mutual funds in the portfolio.
November 2006 Returns
Thursday, December 14, 2006
The U.S. Mint Is Implementing A New Rule Abolishing the Melting of Pennies and Nickels
I have mentioned several times over the past year that I am hording pennies and nickels. We are currently in the midst of a commodities boom and the value of precious metals and non-precious metals (such as those used in current U.S. coins) has soared for the past 2 or 3 years. There are several reasons for the soaring prices that I will not discuss in detail here in this post (although I may discuss it in a future post), but among the chief reasons for this boom is the strong global demand for metals due to strong worldwide economic growth, as well as a devaluation of the U.S. dollar by the Federal Reserve that has increase the U.S. dollar value of commodities.
The value of the metals within several U.S. coins, including pennies and nickels, now exceeds the face value of the coins, as shown in the picture below that I acquired from coinflation.com, the best website I've seen for determining the intrinsic metal of various coins (click on the picture for a larger view). As one can see, the metal value of pre-1982 pennies is now 2.0752 cents (207.52% of face value), post-1982 zinc pennies have a metal value of 1.1257 cents (112.57% of face value), and nickels have a metal value of 6.9879 cents (139.75% of face value).
The value of the metals within several U.S. coins, including pennies and nickels, now exceeds the face value of the coins, as shown in the picture below that I acquired from coinflation.com, the best website I've seen for determining the intrinsic metal of various coins (click on the picture for a larger view). As one can see, the metal value of pre-1982 pennies is now 2.0752 cents (207.52% of face value), post-1982 zinc pennies have a metal value of 1.1257 cents (112.57% of face value), and nickels have a metal value of 6.9879 cents (139.75% of face value).
To realize the intrinsic metal value of these coins, one would need to melt them down to separate out the respective valuable metals. Up until yesterday, my understanding was that this practice was not illegal. I've never done so myself or heard of anyone actually doing so, but I read somewhere that this practice would not be prohibited.
The U.S. Mint has apparently been losing money by making pennies and nickels over the past year as it pays more for the metals used to make the coins that it receives in return when it sells the coins at face value to banks, etc. As of today, the U.S. Mint has made it illegal to melt down pennies and nickels. It is also illegal to transport more than $100 worth of pennies and/or nickels out of the country unless it is for legitimate coinage purposes. The penalty for violation of this new rule is a penalty of up to five years in prison and a fine of up to $10,000 for people convicted of violating the rule.
In case anyone had any doubts about whether collecting pennies and nickels is worthwhile, the U.S. Mint's implementation of the new rule should quell such doubts. It's only a matter of time until the U.S. Mint changes the metal composition of pennies and nickels to include less expensive metals, a move that would likely increase the collectible value of current pennies and nickels.
Thursday, December 07, 2006
November 2006 Returns For My Model Long-Term Portfolio
November was another great month for my Hypothetical Model Portfolio. As of the market close on November 30, 2006, the Hypothetical Model Portfolio* increased in value by $3934.75, or about 3.46% during the month of November. The Hypothetical Model Portfolio is now up $17,812.56 in 2006, a gain of 17.81%, as shown on the table below (click for a larger image of the table).
Emerging markets led the way in November, with the Templeton Russia closed-end fund (TRF)appreciating about 13.86% and the iShares Emerging Markets ETF (EEM) returning about 5.98%. Mid caps, small caps, and tech stocks were also strong performers. The Vanguard Mid Cap Index (VIMSX), the Vanguard Small Cap Index (NAESX), Vanguard Small Cap Value Index (VISVX), and the Nasdaq 100 ETF (QQQQ) rose 3.83%, 3.04%, 3.10%, and 3.43%, respectively. The only other ETF or fund to return more than 3% in November was the Vanguard Developed Markets Index mutual fund (VDMIX), which returned about 3.83%. (VDMIX tracks the broad-based foreign stock MSCI EAFE index.)
The poorest portfolio performers in November were my holdings that invest in stocks of large cap companies and dividend-focused ETFs. The Vanguard Index 500 fund (VFINX), S&P 500 Financial components ETF (XLF), and iShares Dow Jones U.S. Select Dividend Index Fund (DVY) returned 1.88%, 1.63%, and 0.71%, respectively.
The stock market continues to look strong as 2006 comes to an end. With a slight surge in December, my Hypothetical Model Portfolio can close the year up 20%.
*The Hypothetical Model Portfolio was hypothetically created with an investment of $100,000 with investments made as of the closing values on December 30, 2005. The reason why the total cost in the chart is greater than $100,000 is because the total cost accounts for the value of dividends reinvested into the mutual funds in the portfolio.
October 2006 Returns
Emerging markets led the way in November, with the Templeton Russia closed-end fund (TRF)appreciating about 13.86% and the iShares Emerging Markets ETF (EEM) returning about 5.98%. Mid caps, small caps, and tech stocks were also strong performers. The Vanguard Mid Cap Index (VIMSX), the Vanguard Small Cap Index (NAESX), Vanguard Small Cap Value Index (VISVX), and the Nasdaq 100 ETF (QQQQ) rose 3.83%, 3.04%, 3.10%, and 3.43%, respectively. The only other ETF or fund to return more than 3% in November was the Vanguard Developed Markets Index mutual fund (VDMIX), which returned about 3.83%. (VDMIX tracks the broad-based foreign stock MSCI EAFE index.)
The poorest portfolio performers in November were my holdings that invest in stocks of large cap companies and dividend-focused ETFs. The Vanguard Index 500 fund (VFINX), S&P 500 Financial components ETF (XLF), and iShares Dow Jones U.S. Select Dividend Index Fund (DVY) returned 1.88%, 1.63%, and 0.71%, respectively.
The stock market continues to look strong as 2006 comes to an end. With a slight surge in December, my Hypothetical Model Portfolio can close the year up 20%.
*The Hypothetical Model Portfolio was hypothetically created with an investment of $100,000 with investments made as of the closing values on December 30, 2005. The reason why the total cost in the chart is greater than $100,000 is because the total cost accounts for the value of dividends reinvested into the mutual funds in the portfolio.
October 2006 Returns
Thursday, November 16, 2006
Home Depot Is Raising Its Dividend By 50% For The Second Time During 2006
Home Depot (symbol: HD) announced today that it is raising its dividend by 50% to 22.5 cents per quarter, beginning with the dividend being paid on November 30, 2006. This is the second time Home Depot has raised its dividend during 2006. Back in Jaunary 2006, Home Depot announced it was raising its dividend from 10 cents per quarter to 15 cents per quarter. So that is a total increase of 125% in Home Depot's quarterly dividend this year! Back in 1999 Home Depot paid 2.75 cents/quarter. Its dividends have therefore increased some 718% since 1999. The odd thing is that Home Depot is still trading below where it was in 1999 despite the huge increase in its dividend and a more than 200% increase in its earnings per share.
I wrote a post back in February where I argued that Home Depot is a "strong buy." I still believe that Home Depot is a good-long term buy. It may not perform well over the short term, but as its earnings and dividends continue to rise Wall Street will eventually take notice and bid its shares higher like it did during the 90s. The Value Line projects that Home Depot will trade between $95 and $125/share between 2009-2011, a gain of between about 160% and 245%.
I wrote a post back in February where I argued that Home Depot is a "strong buy." I still believe that Home Depot is a good-long term buy. It may not perform well over the short term, but as its earnings and dividends continue to rise Wall Street will eventually take notice and bid its shares higher like it did during the 90s. The Value Line projects that Home Depot will trade between $95 and $125/share between 2009-2011, a gain of between about 160% and 245%.
Sunday, November 12, 2006
Best Posts Over The Past Year
I started my Finance and Investments blog on November 8, 2005. I have posted 77 times since then, discussing a number of topics primarily focusing on stock market investing (including tracking a model portfolio), basic coin collecting, and general personal finance issues. Here are some of my favorite posts from the past year:
Best posts relating to Stock Market Investing:
(1) Selling stocks short
(2) Historical Dividends for the S&P 500
(3) The "FED Model" theory of equity valuation
(4) The MSCI EAFE index is the "S&P 500" of foreign stocks
(5) Small Cap Value stocks outperform Large Cap Growth stocks
(6) "Periodic Table" of Equity Style Investment Returns for 1986-2005
(7) Investing In Growth Stocks Is Not For The Faint Of Heart
(8) Criticisms of Dollar-Cost Averaging Investment Strategies Are Unjustified
(9) Stock Market Styles Are Very Cyclical
(10) Think Twice Before Investing In Companies That Manufacture Memory Devices Or Other Electronic "Commodities"
(11) The Templeton Russia & East European Fund
(12) Closed-end funds are the best way for the common man to invest in Russia and India
(13) Wal-Mart's Stock Valuation Looks Compelling
Best posts relating to Coin Collecting:
(1) Save Your Pre-1982 Pennies
(2) With Commodities Are Soaring, I am Saving Nickels and Pre-1982 Pennies
(3) I'm Still Saving U.S. Nickel Coins
Best posts relating to Miscellaneous Personal Finance Issues:
(1) "Revolt of the Fairly Rich"
(2) Robert Kiyosaki Has Written Another Flimsy Article For Yahoo Finance
(3) Everbank Provides An Easy Way To Speculate In Foreign Currency And Precious Metals
Best posts relating to Stock Market Investing:
(1) Selling stocks short
(2) Historical Dividends for the S&P 500
(3) The "FED Model" theory of equity valuation
(4) The MSCI EAFE index is the "S&P 500" of foreign stocks
(5) Small Cap Value stocks outperform Large Cap Growth stocks
(6) "Periodic Table" of Equity Style Investment Returns for 1986-2005
(7) Investing In Growth Stocks Is Not For The Faint Of Heart
(8) Criticisms of Dollar-Cost Averaging Investment Strategies Are Unjustified
(9) Stock Market Styles Are Very Cyclical
(10) Think Twice Before Investing In Companies That Manufacture Memory Devices Or Other Electronic "Commodities"
(11) The Templeton Russia & East European Fund
(12) Closed-end funds are the best way for the common man to invest in Russia and India
(13) Wal-Mart's Stock Valuation Looks Compelling
Best posts relating to Coin Collecting:
(1) Save Your Pre-1982 Pennies
(2) With Commodities Are Soaring, I am Saving Nickels and Pre-1982 Pennies
(3) I'm Still Saving U.S. Nickel Coins
Best posts relating to Miscellaneous Personal Finance Issues:
(1) "Revolt of the Fairly Rich"
(2) Robert Kiyosaki Has Written Another Flimsy Article For Yahoo Finance
(3) Everbank Provides An Easy Way To Speculate In Foreign Currency And Precious Metals
Wednesday, November 08, 2006
October 2006 Returns For My Model Long-Term Portfolio
October was a great month from my Hypothetical Model Portfolio. As of the market close on October 31, 2006, the Hypothetical Model Portfolio* increased in value by $4482.79, or about 4.10% during the month of October. The Hypothetical Model Portfolio is now up $13,877.81 in 2006, a gain of 13.88%, as shown on the table below (click for a larger image of the table).
The iShares Emerging Markets ETF (EEM) led the portfolio higher, returning 7.06% for the month. Small caps and tech stocks were also strong performers. The Vanguard Small Cap Index (NAESX), Vanguard Small Cap Value Index (VISVX), and Nasdaq 100 ETF (QQQQ) rose 5.20%, 4,82%, and 4.75%, respectively.
The only laggards during October were the S&P 500 Financial components ETF (XLF) and the Templeton Russia closed-end fund (TRF) , returning 2.87% and losing 0.16%, respectively.
Two of my holdings paid dividends during October. As I mentioned in a previous post, the dividends from mutual fund holdings are reinvested, but the dividends from ETFs or the closed end fund (i.e., the Templeton Russia closed-end fund (TRF)) are not reinvested- they will accumulate as "CASH" on the performance table below. The iShares Dow Jones U.S. Select Dividend Index Fund (DVY) paid a dividend of $0.5662 (a total of $45.30 ), and XLF paid a dividend of $0.194/share (a total of $15.33).
Stocks look good heading toward the end of 2006. With a strong finish during November and December, my Hypothetical Model Portfolio could close the year up 15-20%.
*The Hypothetical Model Portfolio was hypothetically created with an investment of $100,000 with investments made as of the closing values on December 30, 2005. The reason why the total cost in the chart is greater than $100,000 is because the total cost accounts for the value of dividends reinvested into the mutual funds in the portfolio.
September 2006 Returns
The iShares Emerging Markets ETF (EEM) led the portfolio higher, returning 7.06% for the month. Small caps and tech stocks were also strong performers. The Vanguard Small Cap Index (NAESX), Vanguard Small Cap Value Index (VISVX), and Nasdaq 100 ETF (QQQQ) rose 5.20%, 4,82%, and 4.75%, respectively.
The only laggards during October were the S&P 500 Financial components ETF (XLF) and the Templeton Russia closed-end fund (TRF) , returning 2.87% and losing 0.16%, respectively.
Two of my holdings paid dividends during October. As I mentioned in a previous post, the dividends from mutual fund holdings are reinvested, but the dividends from ETFs or the closed end fund (i.e., the Templeton Russia closed-end fund (TRF)) are not reinvested- they will accumulate as "CASH" on the performance table below. The iShares Dow Jones U.S. Select Dividend Index Fund (DVY) paid a dividend of $0.5662 (a total of $45.30 ), and XLF paid a dividend of $0.194/share (a total of $15.33).
Stocks look good heading toward the end of 2006. With a strong finish during November and December, my Hypothetical Model Portfolio could close the year up 15-20%.
*The Hypothetical Model Portfolio was hypothetically created with an investment of $100,000 with investments made as of the closing values on December 30, 2005. The reason why the total cost in the chart is greater than $100,000 is because the total cost accounts for the value of dividends reinvested into the mutual funds in the portfolio.
September 2006 Returns
Thursday, November 02, 2006
Fidelity's Magellan Fund Is Being Routed By Its Benchmark Index
Fidelity's Magellan mutual fund was once that most admired mutual fund in the industry from the mid-1970s until the early 1990s. The legendary fund manager Peter Lynch steered the fund to whopping 29% annual returns during his years at the helm between 1977 and 1990. A $10,000 investment in Magellan in 1977 would have grown to $288,000 by 1990, as discussed in this article.
Unfortunately, Magellan's performance has lagged for the past 10+ years due to bad investments by its managers. Its huge size has also been a hindrance, as enormous growth-oriented mutual funds have difficulty closing positions in growth stocks without adversely affecting the price of stocks it is selling.
According to this recent article in Fortune magazine, Magellan is currently mired in its second-worst performance slump relative to the S&P 500 index in 30 years.
Unfortunately, Magellan's performance has lagged for the past 10+ years due to bad investments by its managers. Its huge size has also been a hindrance, as enormous growth-oriented mutual funds have difficulty closing positions in growth stocks without adversely affecting the price of stocks it is selling.
According to this recent article in Fortune magazine, Magellan is currently mired in its second-worst performance slump relative to the S&P 500 index in 30 years.
Friday, October 27, 2006
"Revolt of the Fairly Rich"
Fortune magazine has an interesting article on its websiste regarding entitled "Revolt of the Fairly Rich." This article exposes alleged economic resentment between between people at the lower end of the upper 1% of the weathiest people in the U.S. versus those at the high end of the upper 1%.
According to Fortune some of the "lower uppers" are doctors, accountants, engineers, and lawyers, and these successful people work very hard are are somewhat jealous of the "high uppers" who are perceived as sometimes making 10 times as much money without working 10 times as hard as do they.
I personally think that this alleged resentment is overblown. It is true that some of those professionals who are lower uppers are jealous to a certain extent that people at the high end make so much more money. However, I don't see an impending revolt anytime soon. Many professionals are in highly competitive and stressful businesses/industries and they often feel as though they are not being paid what they are worth. Even though they might not be making as much as the person next door, they certainly must realize that in the grand scheme of things they do have it pretty good.
According to Fortune some of the "lower uppers" are doctors, accountants, engineers, and lawyers, and these successful people work very hard are are somewhat jealous of the "high uppers" who are perceived as sometimes making 10 times as much money without working 10 times as hard as do they.
I personally think that this alleged resentment is overblown. It is true that some of those professionals who are lower uppers are jealous to a certain extent that people at the high end make so much more money. However, I don't see an impending revolt anytime soon. Many professionals are in highly competitive and stressful businesses/industries and they often feel as though they are not being paid what they are worth. Even though they might not be making as much as the person next door, they certainly must realize that in the grand scheme of things they do have it pretty good.
Thursday, October 26, 2006
LSI Logic Finally Delivers!
LSI Logic (symbol: LSI), an integrated circuit and data storage chip designer, is the only individual stock I own in my non-IRA portfolio. LSI, like all semiconductor stocks, is extremely volatile and has stretches of time where it has risen or fallen by 30% in a 2-3 month time span.
I accumulated my LSI position over a period of 2 years, buying shares periodically on dips between October 2002 and July 2004. My average cost basis is $6/share and I have been waiting for LSI to break above $12 so that I can sell my shares and realize a 100+% gain.
LSI closed at $8 on the last trading day in December 2005. It rose to $11.81 on March 31st, but has floundered since then, dropping down below $8, with its lowest close occurring on August 25th, when it closed at $7.46/share.
LSI reported its earnings for its 3rd fiscal quarter yesterday. I expected them to be lackluster, but I was pleasantly surprised. The Street was expecting earnings of 12 cents per share, and LSI reported non-GAAP earnings of 16 cents per share. LSI also provided decent guidance for the upcoming quarter. Wall Street took notice and has bid LSI higher by about 16% today, up to $9.69/share.
I accumulated my LSI position over a period of 2 years, buying shares periodically on dips between October 2002 and July 2004. My average cost basis is $6/share and I have been waiting for LSI to break above $12 so that I can sell my shares and realize a 100+% gain.
LSI closed at $8 on the last trading day in December 2005. It rose to $11.81 on March 31st, but has floundered since then, dropping down below $8, with its lowest close occurring on August 25th, when it closed at $7.46/share.
LSI reported its earnings for its 3rd fiscal quarter yesterday. I expected them to be lackluster, but I was pleasantly surprised. The Street was expecting earnings of 12 cents per share, and LSI reported non-GAAP earnings of 16 cents per share. LSI also provided decent guidance for the upcoming quarter. Wall Street took notice and has bid LSI higher by about 16% today, up to $9.69/share.
Subscribe to:
Posts (Atom)