Are you sleeping at night?

Investors are tetchy and they’re worried. Stock markets in the US are at an all-time high, and the ASX/200 is touching two-year highs at 6000. We worry about three things. How high can the market go, when and by how much is it going to fall and what should we be doing? We asked the same questions early in 2015 as the market touched a high at 6000, and again in early 2016 as the market hit a low of 4800. The third part of that question, what should we be doing now, does not change. Many of us are loaded up with equities to different degrees and at Stockradar across most portfolios you will be about 60 invested and have a cash cushion of 40%, depending on your degree of aggressiveness. We must be able to navigate the ups and downs of the stock market with confidence and be in the optimum position no matter what the market delivers.

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Active vs Passive – What is the skew?

My recent coverage on portfolios (Stockradar Blog and the Radar Newsletter) has been an exercise in highlighting what’s on offer, the pros and cons of various approaches and perhaps what’s not on offer but should be. I have addressed many issues regarding performance against benchmarks, portfolio concentration with regard to spread of stocks, equal versus market cap weighting and the active versus passive debate. The absolute argument seems to have been left out of this debate for some reason but I’ll get to that later as today I want to discuss skewness. Trying to set an objective to cater for all the various nuances of managing a portfolio of stocks is impossible just like trying to target too many objectives for a portfolio such as out-performance or index performance, compound growth, absolute growth or trading returns and capital safety. So the two things to think about are, what are we trying to achieve, and how are we going to get there.

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The great debate – Active versus Passive

Why have passive funds attracted so much money recently?

It’s a very simple equation. One is that only 25% of active managers are good enough to outperform their benchmark. That’s good but it also means 75% of fund managers are charging fees far to high for the underperformance they are delivering and are thus losing funds under management. Then only 5% continue that performance of 3 years. That leaves a very small pocket of fund managers that provide a good service for fee arrangement for you. AFR journalist Philip Baker describes it as fund managers ‘dirty little secret’. Why people give poorly performing managers their money I have no idea. It must be something to do with crowd behaviour I think.

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US stock market and the huge ETF inflows. – What does it mean?

How strong is the relationship between the consistent new highs being set by the US stock market and the huge ETF inflows?

As we know from previous commentary in the Radar Newsletter there is an ETF ‘force’ that is causing stocks to be elevated to levels that that are artificially, abnormally and dangerously higher than the market would normally take them. This significantly heightens downside risk.

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Just how big is the American economy?

Renaming US States Based on Similar GDP’s

The U.S. economy is so big that all of the individual states are comparable to entire countries.

Not surprisingly – big states like California, New York, and Texas are very similar in size to other formidable economies like France, South Korea, and Canada.

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