Monthly Archives: November 2011

Expect More Huge Daily Market Swings

As I write this on November 26, the S&P 500 Index is down by about 4.6% for the week. The S&P 500 dropped 1.9% on November 21st and then dropped 2.2% on November 23rd. These are enormous daily drops. 

Something has happened that has convinced the aggregate of market participants that the total value of every company represented in these indexes is suddenly worth about 4.6% less today than they were worth a week ago.  What terrible news has led to this reduction in the value of these hundreds of firms? 

Nothing concrete, really.  Continue reading

Lemons or Lemonade?

Guest Blog by Kip Robbins, CFA,

This past Sunday it was 71 degrees and dry in Chicago.  If you’ve ever lived here in November, you know that’s an anomaly.  At this time of year, it’s usually 44 and wet.  I felt so warm, I decided to have a glass of lemonade which is usually reserved mostly as a summer treat.  As I sat on my porch enjoying the day with my beverage, it reminded me of the tale of two lemonade entrepreneurs.

The story itself is a little long, but here’s the summary.

There are two businessmen (Bill & Ted) that decide to setup lemonade stands.  Bill does everything with a just-in-time approach: buying only the amount of supplies and inventory he needs for each day.  Ted decides to buy everything for 100 days of lemonade sales up front, including a brand new stand. Continue reading

The Five Biggest Financial Issues for People with Children At Home

This is the second article in a series. The first is titled The Five Biggest Financial Issues for Pre-Retirees.

The years in which you are raising children are among the most important in your life, and financial choices and decisions are no small part.  First, you are managing the widest range of financial demands.  You may simultaneously be paying off student loans, buying or remodeling a house, assisting other family members, saving for your childrens’ financial needs (like college), and saving for your retirement.  In addition, these tend to be the years in which people build their professional reputations.  Many parents feel challenged about how to give their children access to the best education possible, whether that means private schools our buying a house in a neighborhood with the best public schools.  Finally, an issue that gets very little attention,  you are doing this while modeling financial decision making for your children. The example that you set cannot help but shape your childrens’ perspectives and behavior about money.  Continue reading

The Reversal Effect

Guest Blog by Kip Robbins, CFA,

Over the weekend, I sat down with my preteen boys and watched Planet of the Apes. No, not the 21st century version.  We watched the 1968 classic starring Charlton Heston and Roddy McDowall. Afterwards, our conversation stirred about the plausibility of apes being the dominant species and humans as caged, mute creatures.  As they continued the discussion on their own, I started thinking about how this topsy-turvy simian world related to stock investing.  No, really, I did.  Here’s what I came up with. Continue reading

From the Portfolioist Book Shelf: Yes, You Can Be a Successful Income Investor by Ben Stein and Phil DeMuth

[Editor’s note: This book was published back in 2005.]  

In light of market conditions today, and what we have been through in the years since the book was published, the book will be of even greater interest to income investors today than when it was published.

At the very start of this book, the authors make a crucially important point that very few market pundits were paying attention to at the time.  Given the very low dividend yield of the stock market back in 2005-2006, the future price appreciation potential of stocks looked very dubious. At that point in time, however, too many people were totally absorbed by the amazing performance of emerging markets stocks and real estate, both of which were generating Continue reading

The Five Biggest Financial Issues for Pre-Retirees

The last several years have been hard for many people.  There are unique challenges for different segments of the population.  In this article, I am going to focus on the issues specific to people who are approaching retirement and will soon be living on investment income and other forms of non-wage income such as pensions, social security, etc.

The top five financial issues, as I see them, are: Continue reading

The Peril of Underfunded Public Pensions

There is no question that the promises made by state government pension plans are a major challenge to the future financial health of U.S. states. Many states pensions are already dramatically under-funded. A recent study suggests that the aggregate under-funding in state budgets, including pensions, is over $4 trillion. A 2010 analysis, the definitive research to date, finds that the unfunded state pension promises amount to $2.5 trillion.

What do these kinds of numbers really mean in practical terms? Continue reading