Tag: Evergreen

What Investors in Stocks Can Learn from Index Investors

Posted on by phoffman@channelchek.com

Why Aggregate Portfolio Return is More Important than Any Single Holding

Have you ever agonized over a stock in your portfolio that is not performing as you had hoped? While it’s the nature of investing to not bat 1000, it can be hard not to think of the decision to have bought it as a mistake. It probably isn’t. Here is a better way to look at it that uses a recent example (June 1, 2023).

On the first day of June, investors in the Nasdaq 100 (NDX) found themselves up 1.17%. That’s a decent run in one day, and since they are focused on the indexed fund that they are invested in as one investment (not 100), they are content and confident.

But what if they owned the underlying 100 stocks in the fund instead? They might be kicking themselves for having bought Lucid (LCID), or 22 other holdings that are down. Using Lucid as an example, it is lower by 15.6% (June 1); the day before it closed at $7.76, and it is only worth $6.55 today.

Ouch? Or no big deal?

The overall blend of the portfolio is up, yet at the same time, 23 holdings are down – no big deal – this is the way portfolio investing works. In fact ten of the stocks in the NDX declined by more than the 1.17% the overall portfolio is up. Most index fund investors just look at one number and don’t look under the hood for reasons to feel remorse (or glee).

Aggregate Return

There are many reasons investors, even professional financial advisors, avoid building a portfolio with individual stocks, but choose index funds. One is not taking responsibility. If you own, or if an investment manager buys a mix of stocks that are in total up a respectable amount, yet some are underperformers, laggards and drags on the overall portfolio performance, there is a feeling of responsibility for the holdings that are down, the dollar amount lost, and the drag on return that is staring them in the face possibly causing sleepless nights.

On this one day, almost 25% of the Nasdaq 100 was down while the index was up 1.17%. The biggest gainer, PDD Holdings (PDD), is only up by half the percentage of LCID’s is selloff. Yet those looking at the aggregate return and not individual return are feeling mighty good about themselves. And that’s good.

If you hold a portfolio of stocks and did your research, whether it be fundamental analysis, technical analysis, industry trends, etc., and understand why every stock is in your portfolio, you could easily be better off if you learn not to agonize over losers. The returns in most of the last five years in index funds have come because of the weighting of the stocks that have gained, not by having more winners. It has become normal for an index that is up on the year to have been carried by just a dozen or so stocks that are in the mix.

Don’t Undermine Your Portfolio

Investors can negatively impact their performance by focusing too much on one stock. When this happens, they can make bad decisions, some of these decisions might be pain-related, others ego, either way, rational decisions are based on investment probabilities, not human emotions, or overthinking; these can ruin good decisions that would have led to improved returns.

Other investors undermine their portfolio differently, by not wanting the responsibility. They buy the index, and they are done – its out of their hands. If average returns are their goal, they’ve succeeded. Or if they are a financial professional and separating themselves from responsibility is the objective, index funds allow them to blame “the market”; it isn’t their fault – they have succeeded.

If an investor can overcome both of these, they can manage their own holdings and be as or more content than an index fund investor. If they follow good portfolio management strategies including, diversification, analysis, research, etc., and then mainly focus on aggregate return, they can make bette decisions and lose less sleep. Individual stocks don’t matter as much when you are purposeful when choosing holdings. Most large indexed funds aren’t purposeful, they aren’t intended to be investments, there makeup is formulaic and meant to mimic the market, not provide stellar returns.  

Take Away

No investor bats 1000. Even top portfolios may have more losers than winners, the key is to have bigger winners and not overreact or over focus on a few holdings. For investors, a portfolio of individual companies can lead to more mental highs and lows as each stock is a personal decision with great expectations. Avoid this by thinking differently. If those one or two stocks don’t perform as expected, think of all the down stocks in all the index funds that the owners aren’t even paying attention to. All these investors are looking at is one number, aggregate return on all the holdings. Maybe you should too.

Paul Hoffman

Managing Editor, Channelchek

Source

Nasdaq Market Activity

The “Pilgrims” of Today

Posted on by Admin
Image Credit: AJ Groomes (Pexels)

Entrepreneurial Courage and Perseverance Define the Pilgrims

Originally Published November 27, 2019 (Channelchek)

This week, across the U.S., families and friends, young and old, will gather to celebrate the “most American” of holidays, Thanksgiving. The gatherings will most surely include traditional foods of the holiday while families enjoy their own tradition of sharing and gratitude. Thoughts may also drift to almost 400 years ago when in 1621 a determined group of 102 Pilgrims persevered to achieve a mission they believed in – an accomplishment that has had a positive impact for centuries. They met challenges from the very beginning during their two-month-long voyage on the Mayflower, and they struggled as the first Winter took the lives of half the population of settlers. These resolute individuals share many of the same characteristics as today’s newer business owners who are making sacrifices in their own lives, for a better tomorrow for themselves and their descendants. 

Dictionary.com has four definitions for the word “entrepreneur,” the first reads: “a person who organizes and manages any enterprise, especially a business, usually with considerable initiative and risk.” It’s not a stretch to call the original settlers of Plymouth Massachusetts entrepreneurs.   Their grit, ingenuity, initiative, and even willingness to learn and rely on others more experienced in their environment, was certainly entrepreneurial.

The Mayflower colonists did not go by the moniker “Pilgrims,” that tag came 200 years after their landing at Plymouth Rock. Instead they referred to themselves as the “Saints”  to indicate their purity and feelings of being special or chosen. This feeling must have been a strong driver as they risked so much in a way that is extreme by any standard in modern America.

Today’s Pilgrims

The risk-takers today, at least those looking to sacrifice more than others for the dream of a better tomorrow, whether for themselves and their families or for the world at large, are the business entrepreneurs. Especially in fields that are “uncharted territory.” Some examples are companies relying on developing technology, scientific breakthroughs, or mineral exploration. As with most “firsts”, there are always unknowns, long lead times before any profit, and a shortage of capital. These are among the reasons building a business today, particularly in a groundbreaking field with unproven outcome, is a path taken by very few. Those that do, and then survive and thrive, have embraced being nimble, building alliances, persistence, belief in themselves, and asking for help when needed.

“All great and honorable actions are accompanied by great difficulties, and both must be enterprised and overcome with answerable courage.” – William Bradford, Second Governor, Plymouth Colony

Flexibility

The Pilgrims initially went to Holland, where they expected to be welcomed by people of different religions.  Their main reason for having left England was to worship without constraints. The Pilgrims made their home at first in Holland, but the more secular life they found there was not going to lead to a future that matched their vision. They wanted to build their own colony where they would attract others who believed as they did – even if it meant starting with close to nothing.  As entrepreneurs, they didn’t accept an undesirable outcome; they pivoted, changed their plans and redirected their effort, deciding to establish themselves and their future near Virginia’s Hudson River. While traveling, storms pushed them into Massachusetts, where they decided to rethink their plan once again. They then revised their plan and decided to find an area close to where they landed that would be suitable for farming.

To begin the two-month trip across the Atlantic, the Pilgrims borrowed money that, at the time, was an astronomical amount. The loan from, English capitalists looking to profit off the venture was for 1700 pounds. At the time, the average Englishman earned a tenth of a pound per day. As colonists, they first worked collectively to pay back this loan. They later divided acreage to work individually at farming their own land.

Alliances

After the first brutal Winter, the Pilgrims, who raised money in a business arrangement to finance their journey, again opened themselves up to being helped. This time by native Americans. They learned how to best plant corn, where to fish, and how to trap beaver and other furs.  This helped lead the pilgrims to an abundance just one year later and a profit in their second year. Their debt was fully paid off in 23 years.

There are now over 10 million living Americans who are descendants of the Mayflower passengers. The undeniable traits of the entrepreneurs we now call Pilgrims have impacted the world. Entrepreneurs of today share the same traits and skills of those that came before; intention toward a dream, plan, persevere, adjust, negotiate, orchestrate help, and implement. The impact of entrepreneurs continues to shape the world and continue to have a positive impact on the future with their efforts.

Giving Thanks

Ideas have the ability to change the world. Those ideas  that improve lives and positively impact the world are on the list of things we can be thankful for.

Paul Hoffman

Managing Editor, Channelchek

What Traders and Investors Know, But Forget to Do

Posted on by aweinsoff@channelchek.com
Image Credit: Anna Nekrashevich (Pexels)

When Markets are Stormy, Remind Yourself of these Three Rules

Investing is necessary to help build for a future where inflation hasn’t eaten away at savings. But when the investment markets have been at their most difficult in years, most long-term investors have found their investment portfolios have gone into reverse. Many have then committed more cash to their eroding positions as the “buy the dip” thinking, up until recently, has, overall, worked out. 

Whether by managing several billion for a large mutual fund or by keeping my household’s stock portfolio out of trouble, I’ve learned a lot. Most of what has been fruitful seems basic but is often forgotten when battling the markets. The information is easy to convey, the actions take discipline. Here are three key thoughts and actions to help you make decisions.

Know that There are Good and Bad Days

Do you fish? Most people understand fishing. You use past experience and current conditions to estimate (guess) what kind of fish might be biting. You then gather the right equipment and bring yourself to the place where you’re most likely to catch something worthwhile and at a time when the fish are most likely to satisfy your desire to catch them.

You choose the tackle that has been most productive for whatever you’re fishing for, get your lines in the water, and then sit patiently.

More often than not, when fishing, things don’t go as planned. The fish may not be as eager to get caught as you had hoped, or you might quickly catch as much as your freezer can hold, or the law allows. Sometimes a boat comes by and cuts your line. Stuff happens.

If the fish aren’t biting, you evaluate if waiting will yield more than fishing elsewhere. If they instead are biting like crazy, and there seems to be a storm approaching, it might be best to reduce your risk and head back before being caught in a storm. Often the best fishing is right before or after a storm, mid storm is a net negative and could be damaging.

Treat investing like fishing. Learn the best spots for the current conditions. This could be industry sectors, or segments based on market cap., within the categories, ask what companies have the highest probability of a positive outcome. Read up on the companies and see what professional analysts are saying about the financials, business model, management, and outlook. As with fishing, the old guy at the dock that has been fishing the area for years may steer you into (or out of) a boatload of success. Still, use your own judgment, and never act on a hot tip blindly.

Investing, like fishing, can be most successful before or after a storm. Taking positions in the middle is for thrill seekers, not investors. 

Have a Plan

Seems simple enough. If you are fishing, you may schedule yourself for what time of day the fish are likely to be feeding, and if they aren’t, how long, you’ll wait before you try a different lure or a different location? You’re likely to have several hooks in the water at different depths and a plan to switch to whichever depth is getting the most action.

Moving to a different fishing spot when the one you’re at is still productive may seem unreasonable, but if other fishermen have moved to fish where you are, taking your current catch and moving to where you think you’ll do better can be smart.

As a portfolio manager, I held dozens of positions simultaneously, they all had a purpose. If I couldn’t say what the expectations were of any position, I got rid of it. Rolling the dice is expensive. My portfolio objective was to beat the benchmark and consistently be a top-five fund in the category. My plan to accomplish the objective was to have pre-assessed the possibilities before entering any position. I also told myself what I’d do when any of them occurred. In this way, I had a plan for most all scenarios.

The plan helped prevent me from ever trying to take more out of a trade than it is willing to give. It also forced me to never enter a position without having done my homework on the company and the environment in which the company operates.

Technology makes it easier than ever to do preliminary reading and research. Channelchek and other outlets for quality research, coupled with information and tools usually provided by your broker, means today’s retail investor has more than most professionals did in 2000.

Part of the plan should be when to do nothing. The top portfolio managers get paid quite well to do very little each day except monitoring positions in case something, based on their plan, happens. Don’t ever transact because you’re bored. Each position should have a purpose, if there is something else that is likely to better provide that purpose, no-cost trading makes it efficient to adjust your holdings. But if it is doing everything it should, doing nothing is often the best action. Sit on your hands.

Plan your trade, trade your plan, and get out when it is not the best commitment of your money.

Know What You Trade

I’m a student of and a participant in the markets, I suppose I’m also a teacher of sorts, but I never stop learning. This makes me a generalist in many categories, with above-average knowledge in a few. It’s important to know your investment realm. If your fishing is to stand waist deep in water with a flyrod catching more than anyone else on the river, it doesn’t mean you’d have the ability to go offshore and have any success. In fact, offshore, you’d probably throw up. Flyfishing and deep sea fishing are related but not the same. If you knowledgeably trade a few small-cap mining stocks and decide to one day buy TSLA or AAPL, your experience may not translate well.  If either one dropped $50 a share, it might make you want to throw up.

Knowing different investment types and sectors better so you can focus on those you’re best suited to is, like everything else, education and experience.

Learn to decipher what is good information and what is mostly entertainment. Then immerse yourself. Don’t feel that you have to go where the crowd is. Social media has been powerful in getting us to follow the crowd, but defining the right or best thing for us is critical to any success. No one knows what you want more than you, no one knows what you can stomach better than you, and not everyone enjoys any type of fishing or any type of investing. For those people, there are food stores and wealth managers or funds.

Take Away

No matter the caliber of trader/investor, when markets are turbulent, it’s a good habit to refresh yourself on basics. These investing basics include you don’t always have to be in the market – you can expect to run into problem periods, it’s better to avoid these storms than have to rebuild afterward. Also, pre-thinking actions in an “if this, then that” format before even entering a position will prevent bigger problems and provide greater success. Decision-making while the market is either making you euphoric or the market is punching you in the face is the wrong time.  Better decisions are made when thinking clearly. If you don’t think you enjoy investing, leave it to someone else, not everything is for everybody.

For those wishing to hone their expertise, try to learn about everything, but pick a few specialties. I know people that only trade the FAANG stocks and have superior performance. I know others that focus only on biotech and overtime have done well. Then there is the person that only invests in companies with products or services they themselves use, no matter what your focus is, read up on the company and understand how it trades and what its business is impacted by.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.nasdaq.com/articles/three-rules-successful-traders-follow

Understanding Money as the Lubricant for Wealth

Posted on by aweinsoff@channelchek.com
Image Credit: John Guccione (Pexels)

Why Does Money Exist?

Imagine a world without money. With no way to buy stuff, you might need to produce everything you wear, eat or use unless you could figure out how to swap some of the things you made for other items.

Just making a chicken sandwich would require spending months raising hens and growing your own lettuce and tomatoes. You’d need to collect your own seawater to make salt.

You wouldn’t just have to bake the bread for your sandwich. You’d need to grow the wheat, mill it into flour and figure out how to make the dough rise without store-bought yeast or baking powder.

And you might have to build your own oven, perhaps fueled by wood you chopped yourself after felling some trees. If that oven broke, you’d probably need to fix it or build another one yourself.

Even if you share the burden of getting all this done with members of your family, it would be impossible for a single family to internally produce all the goods and provide all the services everyone is used to enjoying.

To maintain anything like today’s standard of living, your family would need to include a farmer, a doctor and a teacher. And that’s just a start.

This article was republished  with permission from The Conversation, a news site dedicated to sharing ideas from academic experts. It represents the research-based findings and thoughts of M. Saif Mehkari, Associate Professor of Economics, University of Richmond.

Specializing and Bartering

Economists like me believe that using money makes it a lot easier for everyone to specialize, focusing their work on a specific activity.

A farmer is better at farming than you are, and a baker is probably better at baking. When they earn money, they can pay others for the things they don’t produce or do.

As economists have known since David Ricardo’s work in the 19th century, there are gains for everyone from exchanging goods and services – even when you end up paying someone who is less skilled than you. By making these exchanges easy to do, money makes it possible to consume more.

People have traded goods and services with one kind of money or another, whether it was trinkets, shells, coins and paper cash, for tens of thousands of years.

People have always obtained things without money too, usually through barter. It involves swapping something, such as a cookie or a massage, for something else – like a pencil or a haircut.

Bartering sounds convenient. It can be fun if you enjoy haggling. But it’s hard to pull off.

Let’s say you’re a carpenter who makes chairs and you want an apple. You would probably find it impossible to buy one because a chair would be so much more valuable than that single piece of fruit. And just imagine what a hassle it would be to haul several of the chairs you’ve made to the shopping mall in the hopes of cutting great deals through barter with the vendors you’d find there.

Paper money is far easier to carry. You might be able sell a chair for, say, $50. You could take that $50 bill to a supermarket, buy two pounds of apples for $5 and keep the $45 in change to spend on other stuff later. Another advantage money has over bartering is that you can use it more easily to store your wealth and spend it later. Stashing six $50 bills takes up less room than storing six unsold chairs.

Nowadays, of course, many people pay for things without cash or coins. Instead, they use credit cards or make online purchases. Others simply wave a smartwatch at a designated device. Others use bitcoins and other cryptocurrencies. But all of these are just different forms of money that don’t require paper.

No matter what form it takes, money ultimately helps make the trading of goods and services go more smoothly for everyone involved.