Tag Archives: outlook

Words Of Encouragement From Buffett

Let’s start with one of the best ways to think about small-caps, from none other than Warren Buffett. Here are Buffett’s thoughts on investing in small-caps: “If I was running $1 million today, or $10 million for that matter, I’d be fully invested. Anyone who says that size does not hurt investment performance is selling. The highest rates of return I’ve ever achieved were in the 1950s. I killed the Dow. You ought to see the numbers. But I was investing peanuts then. It’s a huge structural advantage not to have a lot of money. I think I could make you 50 percent a year on $1 million. No, I know I could. I guarantee that. The universe I can’t play in has become more attractive than the universe I can play in. I have to look for elephants. It may be that the elephants are not as attractive as the mosquitoes. But that is the universe I must live in.” Now, the Russell 2000 index is off 5% year to date and now down 12% in just the last year. Meanwhile, the S&P 500 is only down 1% over both periods. But have no fear, small-cap stocks are fine. Over the long term, they’ll still treat you right, and if you pick the right ones, they’ll do just as well in the short term. This starts with focusing on value. From 1926 to the mid-2000s, small-cap value stocks grossly outperformed large-cap growth. Large-cap growth stocks posted an average return of 9.3% from 1926 to 2004. The small-cap value stocks meanwhile are up 15.9% over the same period. Ibbotson has put together some work that shows small-cap stocks have outperformed large-cap stocks almost 80% of the time over a 15-year period and 95% of the time over a 20-year period. Source: KeyStone Financial We’ve been through the reasons that small-caps outperform before – dubbed the Six Small-Cap Laws – which includes size and growth rates. It’s inherently easier for a company to double earnings from $100 million to $200 million, rather than from $1 billion to $2 billion. The best companies start out as small-caps. This includes the likes of Wal-Mart (NYSE: WMT ) and Microsoft (NASDAQ: MSFT ). But again, there are a lot of small-caps out there and the risk/reward profiles are all over the spectrum. Don’t get caught buying overpriced small-caps or hold onto looks for too long waiting for a turnaround. Disclosure: None

Why I Haven’t Purchased A Stock In 30 Days

30 days everyone. It has been a long 30 days since I have purchased a stock. An investment. A bridge stone to financial freedom and it feels… well, there really isn’t one word for it. It is weird, fast and unusual, to say the least. As I sit and see the calendar continue to gain momentum towards, now, the end of March, I sit back and think, whoa, it’s been over 4 weeks since an investment move has been made. Why? Here is what I was able to come up with. 30 Days and No Purchase Why have I gone an alarmingly high 30 days with no stock purchase? It feels like 10 years ago and just yesterday at the same time that I made a wallop of an investment into T. Rowe Price (NASDAQ: TROW ) on the 24th of February. What’s interesting is the price point was at $66.45 and is now at $72.15 as of 3/24 close before the Easter weekend. That’s a $5.70 increase since the purchase date or a crazy 8.577% increase! What the heck is going on here? Hence, another reason why I haven’t really made a purchase. However, as I go down the winding path of a never ending banter, let’s list out some reasons. 1.) Appreciation/Crooked Graph of the Market – The market is showing “weird” signs of appreciation. With T. Rowe price above appreciating almost 9%, the market is acting quite goofy lately. Even ADM has increased over 10% since my last purchase. A reason why I haven’t purchased then, in the last 30 days, has been the market itself has made it “not easy” to make individual purchases. Actually, I just looked at the S&P over the last 30 days and the top 500 is up 5.5%: Click to enlarge 2.) Given that stocks are back on the rise – couldn’t have come at a better time for me. I have quite a bit of Federal & Local taxes to pay – love Uncle Sam, and this time – we are talking well, well over the 4 digit mark. Additionally, you combine that with two bachelor parties, two weekends and a big vacation trip planned coming up – the cash that I’ve been able to “save” at this time being will likely be used – all for great things, but nonetheless, takes “away” from the investing pot, hands down. Who knows – Bert’s been talking a big game of potentially selling his FirstEnergy (NYSE: FE ) stock – maybe I could do the same and have capital to use for a dividend foundation stock ? Eh? 3.) However – I am conservative in nature and I know I have budged quite high for these expenses listed above in #2. With that, I think I’ll have cash suddenly and my plan is to have it ready for my new found 2016 goal . That goal would be to staying committed on making larger investments into the stock market of $3,000+ each time, thus reducing trading costs and heavily increasing my dividend income and Dividend Reinvestment each time that newly acquired/added position pays out. What’s interesting – I could always download and use Robinhood and have absolute no trading costs, hmm… thoughts? 4.) My watch list isn’t so “watch” anymore. As you recall – back in the early days of March I had a what was called a February stock watch list blog post . What was on there? The likes of – Pfizer (NYSE: PFE ), Johnson & Johnson (NYSE: JNJ ) and Aflac (NYSE: AFL ). These were stocks I owned already, however, the prices at the time of the article were – $29.70, $106.38 and $60.97, a more compelling case. They all 3 are now trading, in order, $30.08 (Up 1.28%), $108.31 (Up 1.81%) and $62.70 (Up 2.83%). A.k.a. – they have all increased since then – not by too, too much, but all up nonetheless. If PFE dips back below $30 – my eyes are locked in there. But another reason – the stocks that I want, are more expensive and well, damn – no one wants that. 5.) Two words – Busy Season. Nuff Said. Overall Purchase-less Conclusion Here I am. Sitting on cash. Cash that I really can’t use due to those expenses above. However, the market has increased quite a bit that it has allured me away from being active into the market, but also busy season, has taken a toll on the free time of analyzing and staying in tune on the almost minute basis that I was on. Therefore, the combination of life events, tax consequences an appreciating market – has pushed me away from being active over the last 30 days. Can this be the first time that I don’t go out and buy an individual stock purchase in the month? I say individual stock purchase, as through work I still have 5% of my pay going to the Roth 401(k) option, so an investment still does occur, just isn’t an active investment purchase. What do you guys think? Have you guys slowed down at all and/or feel the same way? Would kill to hear your thoughts and what you are seeing. Any big bargains that have been in/out lately? Thanks again everyone, Happy Easter weekend, God bless and looking forward to talking with everyone. Talk soon!

Steve Gerbel Explains How To Manage Merger Arbitrage Risk (Video)

By DailyAlts Staff In this video , Steve Gerbel explains merger arbitrage by making an analogy to air travel: “They say the safest place for an airplane is in the hangar, but that’s not what airplanes are for,” he says. When we fly, we want the reward of air travel, and we’re willing to take on some risk in pursuit of that reward – but we want the risk to be as minimal as possible. This, according to hedge-fund expert Mr. Gerbel, is what the SilverPepper Merger Arbitrage Fund does: it seeks the highest rewards for the least risk. What is merger-arbitrage? Mr. Gerbel explains with an example of a stock trading at $8.50. When another firm announces its intention to acquire it at $10 per share, the share price of the acquisition target might rise to $9.70 – the remaining $0.30 reflects the uncertainty that the deal might not go through, and this is where arbitrage comes in. By buying shares of the acquisition target after the announcement but before the deal is closed, SilverPepper seeks to make a predictable $0.30 gain on the deal. “Dime after dime,” this adds up. According to Mr. Gerbel, 96% of all announced mergers have closed, but his firm still undertakes extensive research before entering a trade. Mr. Gerbel likens this to a pre-flight checklist to ensure an airplane is safe to fly.