• Sell In May and Go Away Didn’t Work
    Posted by on November 5th, 2009 at 12:50 pm

    From Gary Alexander:

    One of the most widely-touted market calendar myths is that you should “sell in May and go away.” This system apparently worked well from 1950 until 2004. The theory runs like this: Brokers love to enjoy the summer market doldrums at the beach and then come back after Labor Day to sell stocks, causing a scary decline. Then, in November, they buy back for year-end “window dressing” in a “Santa Claus Rally.”
    According to the Stock Trader’s Almanac (2006 edition), the 55-year Dow gain (1950 to 2004) from November 1 to April 30 was nearly 50-fold (or +7.9% per year, on average), while you actually lost money (-5%) in the May 1 to October 31 period. Final tally: +4,900% in cold months vs. -5% in warm months. Practically, this means investing in stocks November 1 and switching to fixed income on May 1.
    Sounds convincing! Alas, this hoary old theory didn’t work in 2009: The S&P 500 gained 18.7% from May to October, even including the disappointing 250-point Dow drop last Friday. In the previous six months – in the supposedly superior November 1 to April 30 period – the S&P fell 9.9%. Over the past seven years, the November-April gains have averaged 1%, while the May-October gains averaged +3.3%.
    So, ask yourself: Do you really want to throw away the 3.3% average recent gains from May 1 to October 31, based on a theory that worked last century? And do bank CDs or Treasury bonds on the “sidelines” offer you anything better than a 6.6% annual rate? And don’t forget the tax consequences of short-term trading. If you’re trading in a taxable account, six-month switches can decimate your after-tax gains.
    My answer: Don’t sell in May, and don’t go away. Switching sectors might be prudent, but not leaving stocks altogether. However, if you’re looking for a good time to buy, November is still #1, historically.

  • Earnings from Moog and Becton, Dickinson
    Posted by on November 5th, 2009 at 12:08 pm

    We had two more Buy List earnings reports. Becton, Dickinson (BDX), which I like a lot, saw its earnings rise to $1.25 a share for its fiscal fourth quarter which matched estimates. They made $1.11 for last year’s fourth quarter. Wall Street expects earnings next year of $5.09 which works out to a growth rate of 3%. This means the stock is currently going for about 13 times earnings.
    As I’ve mentioned before, I haven’t been very pleased with Moog (MOG-A) this year. The stock is down about 30% and it’s the worst performer on the Buy List. For this past quarter, the company earned 35 cents a share which was less than half what they made for last year’s third quarter. They missed Wall Street’s call by a penny a share. For the second quarter, they missed the Street by 10 cents a share.
    The only good news is that Moog sees EPS ranging between $2.15 and $2.35 for next year, which means the stock is somewhat reasonably priced.

  • The Periodic Table of Finance Bloggers
    Posted by on November 5th, 2009 at 10:18 am

    I’m honored and humbled to be included on The Reformed Broker’s Periodic Table of Finance Bloggers.

  • Today’s Productivity Report
    Posted by on November 5th, 2009 at 10:15 am

    I’m simply stunned by today’s report on productivity.

    The productivity of U.S. workers surged in the third quarter at the fastest pace in six years as companies squeezed more from remaining staff to boost profits.
    The measure of employee output per hour jumped at a 9.5 percent annual rate, topping the highest estimate of economists surveyed by Bloomberg News, Labor Department figures showed today in Washington. Labor costs fell at a 5.2 percent rate, capping the biggest 12-month drop since records began in 1948.

  • Quote of the Day
    Posted by on November 5th, 2009 at 10:10 am

    From Eric Falkenstein: “A prig is someone wedded to a theory that explains everything, and can be highly mathematical and conventional, like Phillipe Jorion, or highly obtuse, like Nassim Taleb’s insight that ‘risk is what you don’t expect’ [which I find not profound, but irrelevant].”

  • Something about Decades
    Posted by on November 4th, 2009 at 9:49 am

    With only a few trading left for the “aughts,” I’m reminded that many cycles have begun and ended when the tens digit changes on the calendar. There was, of course, some unpleasantness in 1929. Also, the price of gold peaked a few days into 1980. The Japanese market peaked on the very last day of the 1980s. The Nasdaq’s run reached its zenith not long into 2000. Gold also reached its most recent low point in mid-1999.
    If read this kind of thing in the newspaper, I’d dismiss it as someone being fooled by randomness. Still, it is interesting to note.

  • Gold Hits New All-Time High
    Posted by on November 4th, 2009 at 9:35 am

    The yellow metal is closing in on $1,100 an ounce. But gold has a long way to go to match its inflation-adjusted high from 30 years ago. Gold would still have to double from here to reach that.

  • Historical Footnote to Today’s Election
    Posted by on November 3rd, 2009 at 10:57 pm

    Today is Election Day in New York and after 34 years in office, 90-year-old Robert Morgenthau did not seek reelection as Manhattan’s District Attorney. It’s an understatement to say that Morgenthau is a legend in New York politics. Consider that he ran for governor 47 years ago when he lost to Nelson Rockefeller. Obama was a little over one-year old at the time! Morgenthau tried running again in 1970 but his campaign didn’t get far.
    Morgenthau also comes from a very prominent New York family. His father was FDR’s Treasury Secretary, and his grandfather was Wilson’s ambassador to—not Turkey—but the Ottoman Empire (or if you prefer, the Sublime Porte). Henry Morgenthau Sr. is probably best known for publicizing the Armenian Genocide.
    Also, on the TV show Law & Order, the elderly DA Adam Schiff is based on Robert Morgenthau.

  • Berkshire Hathaway to Split 50-for-1
    Posted by on November 3rd, 2009 at 10:47 am

    It finally happened. Warren Buffett’s Berkshire Hathaway (BRKB) announced that it will split 50-for-1. These are the B shares, not the A shares which are still around $100,000.
    The Class A and B shares usually trade at a ratio of 30-to-1. If you own the Class A shares, you can convert it into 30 B shares, but not the other way around. The B shares, however, only carry 1/200th the voting power of the A shares.
    In other words, post-split, the B shares will be about 1/1500th of the A shares. Going by today’s price, the B shares will be around $65.

  • Cognizant Technology Rises on Earnings
    Posted by on November 3rd, 2009 at 10:45 am

    One today after saying that I’m probably going to ditch Cognizant Technology (CTSH) at the end of the year, the company comes out with great earnings.
    For the third quarter, CTSH earned 48 cents a share which creamed Wall Street’s estimates of 41 cents a share. For the fourth quarter, the company sees EPS of 49 cents a share.
    The company now expects earnings for this year of $1.88 a share. That means that it’s going for 22 times earnings which is a bit rich for me.