Thursday, June 18, 2015

Do you need to regularly book profits, as many believe?

Rammohan was tormented by this very question� he wanted to book profits when the markets go up and wanted to invest in the markets again when they come down� only that his friend and financial planner, Aditya, would not allow him this indulgence.  Aditya, was of the firm opinion that such short-termism does not serve any purpose and indeed is deleterious for an investor. The reasons Aditya gave seemed convincing enough� but still, Ram was feeling the itch to cash in when the going was good.

Aditya advanced the following arguments �

1.       Investments have to be done with a purpose.  If it has been done as part of a broad strategy, why should one disturb the investment, every once in a while, to take �advantage� of short term ups and downs.  Taking advantage of ups and downs is easier said than done.  One may get carried away when the market is going up, like most people did during the go-go days of 2007. They invested in a rising market as there were many pundits who were predicting a very rosy scenario for the future, then.  And then, there were others who predicted absolute dog-days for years on end, once the market bottom fell off. Both were not true as we now know. If one had invested in the rising markets and had cashed out after the markets have fallen precipitously, they would have made massive losses. Lots of them have. Timing the markets is difficult. It happens to some, mostly by chance. Stay invested and over time good returns do accrue.

2.       If one cashes out and again reinvests in the same asset class, it beats the purpose of cashing out itself. If for instance, one cashes out from a Large cap scheme, books a profit only to invest in another large-cap scheme, it serves no purpose. If one redeems from an Equity MF scheme and invest in a debt scheme, due to specific requirements or due to asset rebalancing, only then it would be fine.

3.       There are costs & work involved in regularly cashing out/ reinvesting. One needs to consider these and see if it is worthwhile going through all that trouble.  Many try to change the loan agency when they find a slightly cheaper loan, which entails a cost and paperwork� or sell equity and pay brokerage for selling and reinvesting.  There is not much gained in many of these transactions at the end of it all. Being opportunistic is a favourite word with investors.  But it is not as simple as it appears, on the surface.  Size up the opportunity and analyse all aspects to check whether it is worth the time and effort and then move in.

4.       If goals are mostly long-term, like retirement, children�s education, marriage, why does one want to take short-term calls? People indulge their gambling instinct with their shares and Mutual funds, which is unfortunate.  After doing that, they blame the stock market being a gambler�s den.  Stock market has given 18% CAGR over a long period of over 30 years. No other asset class has given such spectacular returns, over such a long period, Gold and property included.

5.       They are not gamblers when it comes to property purchase or gold.  They are willing to stay invested for several years, even decades. Obviously they get good returns in these and they stay convinced that these things pay off very well. As regards stocks/ Equity MFs, many have burned their fingers because their time horizon has been several days to several months ! If one gambles, one gets a gambler�s returns. Invest for the long-term and you get good returns on investment.

6.       Just because Stocks and Mutual Fund NAVs are quoted on a daily basis, one need not have to look at them and plunge into the  depths of panic or get carried away in a wave of euphoria.  If one has chosen wisely, it is a good idea to leave it alone. Looking at one�s portfolio once every quarter or half-year is fine, to see if they are still good to retain.  If they are good, it is better to simply leave it alone.

7.       Diversified portfolios are good.  Not for nothing we have a saying which exhorts one not to put all eggs in one basket.  A good diversified portfolio is the best protection for long-term performance.  Even within the asset class, proper diversification is necessary. Getting carried away by fads is dangerous. Currently, investing in Gold is the fad.  People see what returns they get now � they don�t look how it may perform in the long-term. That�s a mistake.

8.       Look at cumulative / growth options, if investments are for the long-term. There is no point in receiving small dividends which one has to keep track of. Since dividends mostly come as direct credit to the bank, it gets spent without one even realizing it. By this, the beneficial effect of compounding does not take place.

After listening to a fairly long sermon, Ram was pondering over it. Aditya�s throat was parched. He sipped on his lemonade and left Ram to ruminate� there was enough food for thought for him, for an evening.


 

Sunday, June 14, 2015

In Facebook's wake, will exchanges face scrutiny in Twitter IPO?

Bloomberg News

Eighteen months after Facebook Inc.’s initial public offering was crippled by a Nasdaq OMX Group Inc. computer, equity markets get a shot at redemption Thursday when the New York Stock Exchange hosts the debut of Twitter Inc.

While faulty trades are rare and more than 250 IPOs have been sold in the U.S. since Facebook, infrastructure mishaps, including issues of data transmission similar to those that hurt Facebook in May 2012, have shown few signs of abating. Nasdaq’s three-hour shutdown in August and outages on stock and options venues from New York to Chicago in the past three weeks are straining the patience of regulators.

That makes Twitter’s arrival on the NYSE a critical test for an industry whose reputation has been riven by high-profile failures since the flash crash of May 2010. Securing the deal was a coup for Duncan Niederauer, the NYSE Euronext chief executive officer looking to prove his company can succeed where Nasdaq stumbled.

“Investor perception and confidence is still shaky, so anytime we get a high profile win, for instance Twitter’s IPO, it will go a long way to building back that trust,” Drew Nordlicht, managing director and partner at HighTower Advisors LLC in San Diego, said in a phone interview. His firm oversees $22 billion. “Trust is something that is earned, and when it is lost, it takes a while to earn it back.”

Twitter, the San Francisco-based short-message Internet service, will probably set the price for its IPO tonight and begin trading on the NYSE tomorrow. It’s likely to raise more than $1.75 billion in a deal several times oversubscribed, two people with knowledge of the matter said this week.

SWELLING DEMAND

NYSE’s challenge is to handle that kind of demand. More than 458 million shares of General Motors Co., which is listed on NYSE, changed hands when it began trading in November 2010. Facebook did 582 million shares in its first day last year. To make sure it’s ready, NYSE recently let brokers test its technology.

“A new generation of investors have not participated in either the market from the equity side, or avoided getting into the market because of challenges that the industry has faced,” Scott Cutler, executive vice president and head of global listings at NYSE Euronext, said in a phone interview yesterday. “This is an opportunity to rebuild confidence.”

Mr. Cutler drew a distinction between Nasdaq and the NYSE, where the process of opening a newly public stock is aided by human market makers on the exchange’s trading floor in Manhattan. Precautions have included replications aimed at duplicating expected order flow and turning on extra capacity.

RIGHT PRICE

“I don’t expect that we will touch that capacity here, but we’ve effectively built the systems to handle as much volume as ever happened in any IPO,” he said. “We’re confident in the systems, the technology and the! people that all play into opening the stock ultimately at the right price.”

Will Briganti, a spokesman for Nasdaq, declined to comment on Twitter’s listing.

Scrutiny is so high because IPOs have seen some of the biggest market-structure catastrophes. Nasdaq Stock Market member firms lost tens of millions of dollars in Facebook’s public debut after the computer matching the first trade went into a loop and the open was delayed. Missing confirmations and confusion about prices were the first signs of trouble for a stock that fell more than 50 percent in less than four months.

Nasdaq was fined $10 million by the Securities and Exchange Commission and faces $41.6 million in claims from members. The exchange, home to tech pioneers including Apple Inc. and Microsoft Corp., learned last month that it wouldn’t be listing Twitter.

Two months before the Facebook IPO, Bats Global Markets Inc., an all-electronic exchange operator based in Lenexa, Kan., stunned Wall Street by failing to get its own IPO trading hours after it was priced. Flawed software was blamed by CEO Joe Ratterman, who pulled the listing and now is in the process of merging with a rival, Direct Edge Holdings LLC.

“It’s such a public event,” Sang Lee, Boston-based managing partner at Aite Group LLC, said in a phone interview. “An IPO is something that everyone understands. When people talk about, ‘There was an IPO, something happened and I couldn’t buy my shares,’ that’s something that ties into the confidence of the market overall and the reputation of the exchanges.”

For the 221-year-old NYSE, the debut is both a challenge and an opportunity to encroach further on Nasdaq’s tech dominance. Twitter will join Pandora Media Inc., LinkedIn Corp. and Yelp Inc. as Internet companies that listed on the NYSE since 2011.

LISTING VENUES

Although there are 13 exchanges among the more than 50 venues where U.S. stocks trade, NYSE and Nasdaq are the only two wh! ere compa! nies go public. Competition for IPOs is critical for both, which get about a fifth of revenue from listing fees and related services.

While Nasdaq once dominated technology and Internet IPOs, NYSE Euronext has started to reverse the trend. Between the start of 2011 and yesterday, NYSE won 46 IPOs from those industries, with $8.7 billion raised, according to data compiled by Bloomberg. Nasdaq secured 44 companies raising $24.7 billion, including the $16 billion that Facebook received.

“This is a nice win for the NYSE, and they definitely don’t want to see a problem like Nasdaq had with Facebook just for pure competitive reasons,” said Richard Repetto, a New York-based analyst at Sandler O’Neill & Partners LP. “Everybody is trying to do the best they can to ensure that there are no problems.”

In the past three months, exchanges have reported multiple instances of information lines being snarled. Price dissemination among options venues broke down on Sept. 16 when the central conduit operated by an NYSE Euronext unit that links a dozen exchanges faltered, forcing them all to shut briefly.

The mishaps have become so frequent and serious that Standard & Poor’s said in September that credit ratings for exchanges worldwide may be cut if they’re not addressed. After Nasdaq’s Aug. 22 data-feed error prevented thousands of U.S. stocks from trading for three hours, SEC Chairman Mary Jo White demanded an industry response.

Breakdowns “involved relatively basic, albeit serious, errors,” she said at a Security Traders Association conference in Washington on Oct. 2. “Many could have happened in a less complex market structure, but the persistent recurrence of these events can undermine the confidence of investors and public companies.”

While NYSE

Tuesday, June 9, 2015

Checking an Important, Overlooked Metric at Heritage-Crystal Clean

It takes money to make money. Most investors know that, but with business media so focused on the "how much," very few investors bother to ask, "How fast?"

When judging a company's prospects, how quickly it turns cash outflows into cash inflows can be just as important as how much profit it's booking in the accounting fantasy world we call "earnings." This is one of the first metrics I check when I'm hunting for the market's best stocks. Today, we'll see how it applies to Heritage-Crystal Clean (Nasdaq: HCCI  ) .

Let's break this down
In this series, we measure how swiftly a company turns cash into goods or services and back into cash. We'll use a quick, relatively foolproof tool known as the cash conversion cycle, or CCC for short.

Why does the CCC matter? The less time it takes a firm to convert outgoing cash into incoming cash, the more powerful and flexible its profit engine is. The less money tied up in inventory and accounts receivable, the more available to grow the company, pay investors, or both.

To calculate the cash conversion cycle, add days inventory outstanding to days sales outstanding, then subtract days payable outstanding. Like golf, the lower your score here, the better. The CCC figure for Heritage-Crystal Clean for the trailing 12 months is 43.6.

For younger, fast-growth companies, the CCC can give you valuable insight into the sustainability of that growth. A company that's taking longer to make cash may need to tap financing to keep its momentum. For older, mature companies, the CCC can tell you how well the company is managed. Firms that begin to lose control of the CCC may be losing their clout with their suppliers (who might be demanding stricter payment terms) and customers (who might be demanding more generous terms). This can sometimes be an important signal of future distress -- one most investors are likely to miss.

In this series, I'm most interested in comparing a company's CCC to its prior performance. Here's where I believe all investors need to become trend-watchers. Sure, there may be legitimate reasons for an increase in the CCC, but all things being equal, I want to see this number stay steady or move downward over time.

Source: S&P Capital IQ. Dollar amounts in millions. FY = fiscal year. TTM = trailing 12 months.

Because of the seasonality in some businesses, the CCC for the TTM period may not be strictly comparable to the fiscal-year periods shown in the chart. Even the steadiest-looking businesses on an annual basis will experience some quarterly fluctuations in the CCC. To get an understanding of the usual ebb and flow at Heritage-Crystal Clean, consult the quarterly-period chart below.

Source: S&P Capital IQ. Dollar amounts in millions. FQ = fiscal quarter.

On a 12-month basis, the trend at Heritage-Crystal Clean looks very good. At 43.6 days, it is 17.4 days better than the five-year average of 61. days. The biggest contributor to that improvement was DIO, which improved 16.7 days compared to the five-year average. That was partially offset by a 5.7-day increase in DPO.

Considering the numbers on a quarterly basis, the CCC trend at Heritage-Crystal Clean looks OK. At 49.5 days, it is little changed from the average of the past eight quarters. Investors will want to keep an eye on this for the future to make sure it doesn't stray too far in the wrong direction. With quarterly CCC doing worse than average and the latest 12-month CCC coming in better, Heritage-Crystal Clean gets a mixed review in this cash-conversion checkup.

Though the CCC can take a little work to calculate, it's definitely worth watching every quarter. You'll be better informed about potential problems, and you'll improve your odds of finding underappreciated home run stocks.

Looking for alternatives to Heritage-Crystal Clean? It takes more than great companies to build a fortune for the future. Learn the basic financial habits of millionaires next door and get focused stock ideas in our free report, "3 Stocks That Will Help You Retire Rich." Click here for instant access to this free report.

Add Heritage-Crystal Clean to My Watchlist.

Monday, June 8, 2015

JPMorgan and Friends Join Dow on Its Climb

The day the Dow Jones Industrial Average (DJINDICES: ^DJI  ) has been waiting for is finally here. With Fed Reserve Chairman Ben Bernanke speaking before Congress this morning, investors are finally getting some news on the economy that can inform their trades -- and so far, the news has been good. The index is up 103 points as of 11:30 a.m. EDT, down from an initial spike of a 151-point gain.

Bernanke's testimony
Within the past few days, there have been a number of comments from top Federal Reserve officials that preempted the chairman's testimony this morning. But they all said the same thing: It's too early in the economic recovery to pull back on the current stimulus policy. Bernanke noted that the recent improvements in the labor market are a positive sign, but that there is still weakness that requires the support of the current policy. Acknowledging the low-interest-rate environment, Bernanke said that the Fed is looking for high interest rates later on, but while cutting back the current stimulus would cause a small rise in rates, it would also carry the risk of slowing or ending the current recovery.

During his testimony, Bernanke also put some of the onus on Congress, saying that "monetary policy does not have the capacity to fully offset an economic headwind of this magnitude." With the steps taken by Congress, such as new tax increases, the sequestration, and other fiscal policy changes at the federal level, Bernanke expects a substantial drag on the economy through the rest of the year. Reiterating his statements from the most recent Federal Open Market Committee announcement, Bernanke said that the Fed would adjust the current QE policy as new data comes out showing economic improvements -- especially in the labor market.

In housing news
Applications for new mortgages and refinancings fell for the second week in a row. Increasing mortgage interest rates are being blamed for the 9.8% fall. With the majority of activity falling under the refinance category, the 11.7% drop in new refinancing applications made a big impact. New mortgage activity for new homes fell by 3%.

Existing home sales were up in the month of April, however. Though the 0.6% increase doesn't seem like much, it does show that there is still demand for homes. This is an important piece of data for the housing market, which has seen new housing starts decline significantly.

Inside the Dow
Home Depot (NYSE: HD  ) is leading the Dow component stocks this morning with a 2.68% gain as of this writing. Though some of the stock's gains may be fueled by the recent damage caused by a horrific tornado in Oklahoma, the retailer also has benefited from the housing sector's continued rebound. The company recently announced earnings that beat expectations on both the top and bottom lines. With that, Home Depot increased its outlook for the rest of the year. As the housing market continues to recover, the likelihood of the company following its lead is high.

Pfizer (NYSE: PFE  ) is also in the winners circle this morning, with a 3.1% gain. The pharmaceutical giant announced that it will be splitting off the remainder of Zoetis (NYSE: ZTS  ) , its animal health business. The company is offering a share exchange to investors in order to reduce its 80.2% stake in the company. The tax-free transaction would allow shareholders to take over the remaining stake in Zoetis, making it fully independent. The company has risen 27% since its IPO in February. This is one of the final steps in slimming down Pfizer in order to refocus on developing new drugs.

JPMorgan (NYSE: JPM  ) has had quite a day so far. After a shareholder vote went in favor of Jamie Dimon keeping his dual CEO and chairman roles, as well as management announcing a newly increased dividend, the bank is up 2.34% this morning. The vote yesterday was a 68-32 split, giving the victory to Dimon quite handily. The results even beat last year's margin, which was a 60-40 split. Almost as a reward after the tough battle, management announced a $0.38 per share dividend for July, marking a 26% increase.

With big finance firms still trading at deep discounts to their historic norms, investors everywhere are wondering if this is the new normal, or if finance stocks are a screaming buy today. The answer depends on the company, so to help figure out whether JPMorgan is a buy today, check out The Motley Fool's premium research report on the company. Click here now for instant access!


Thursday, June 4, 2015

Whoa There! Bank of America’s Earnings Weren’t that Bad

Looking at the performance of Bank of America's (NYSE: BAC  ) shares following its earnings announcement, you'd be excused for thinking that the nation's second largest bank by assets had a horrible first quarter. But this simply isn't true. In the video below, Motley Fool contributor John Maxfield discusses why the moves in Bank of America's stock were more of an overreaction as opposed to an accurate reflection of the bank's first-quarter performance.

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Wednesday, June 3, 2015

Why IBM Still Looks Solid

Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, global IT solutions giant International Business Machines (NYSE: IBM  ) has earned a coveted four-star ranking.

With that in mind, let's take a closer look at IBM and see what CAPS investors are saying about the stock right now.

IBM facts

Headquarters (founded)

Armonk, N.Y. (1910)

Market Cap

$233.2 billion

Industry

IT consulting and other services

Trailing-12-Month Revenue

$104.5 billion

Management

Chairman/CEO Virginia Rometty

CFO Mark Loughridge

Return on Capital (average, past 3 years)

25.8%

Cash/Debt

$11.2 billion / $33.3 billion

Dividend Yield

1.6%

Competitors

Accenture

Hewlett-Packard 

Microsoft

Sources: S&P Capital IQ and Motley Fool CAPS.

On CAPS, 91% of the 4,769 members who have rated IBM believe the stock will outperform the S&P 500 going forward.

Just yesterday, one of those bulls, Motley Fool Co-Founder David Gardner (TMFSpiffyPop), tapped IBM as a particularly solid selection:

Nobody ever went wrong buying IBM (stock, for the long term). An amazing company by almost any standard I can think of. That said, this won't be hitting my Stock Advisor scorecard anytime soon, I don't think, as there are just too many other companies I can foresee outperforming this one. But it's still darn good enough for one of my green thumbs! Outperform.

If you want market-thumping returns, you need to put together the best portfolio you can. Of course, despite a strong four-star rating, IBM may not be your top choice.

We've found another stock we are incredibly excited about -- excited enough to dub it "The Motley Fool's Top Stock for 2013." We have compiled a special free report for investors to uncover this stock today. The report is 100% free, but it won't be here forever, so click here to access it now.

Want to see how well (or not so well) the stocks in this series are performing? Follow the TrackPoisedTo CAPS account.

Tuesday, June 2, 2015

Walmart Debuts Low-Cost Checking Accounts for 'Unbanked'

Views Of Shoppers And Products During A Wal-Mart Store Grand Opening Patrick T. Fallon/Bloomberg via Getty Images PASADENA, Calif. -- Walmart is introducing a mobile checking account for its customers that will eliminate the overdraft and bounced-check fees traditionally charged by banks. It is Walmart's biggest push into the financial services sector and its target is customers that have limited access to traditional banking. The company's GoBank checking has no minimum balance requirements and the monthly fee of $8.95 is waived if a direct deposit of $500 is made each month. Clearing the way for people with poor credit scores and little money, Walmart said Wednesday that credit bureau ratings and other scores typically used to determine eligibility aren't part of the process. Daniel Eckert, senior vice president of services for Walmart U.S., said that the retailer's customers "feel they just aren't getting value from traditional banking because of high fees." Walmart is reaching for Americans who have suffered in the wake of the recession. Many of those people are the retailer's core customers. The Census Bureau said last week that median household incomes were $51,939 in 2013. Adjusting for inflation, that's 8 percent lower than in 2007, when the recession began. Increasingly meager paychecks have forced many Americans just getting by to pay fees for the same basic transactions that people with more money don't. Customers can receive payroll direct deposit earlier than their normal payday if their employer notifies GoBank of a deposit in advance. GoBank checking accounts offer additional services to aid in budgeting. The account notifies customers in real time if a purchase they are about to make falls outside of their budget. The "Fortune Teller" feature crosschecks the price of a particular item against a customer's planned income and other expenses. In addition, customers can send money instantly to each other at no charge through either email or a text message. Walmart Stores (WMT), based in Bentonville, Arkansas, is operating the new account through Green Dot's (GDOT) federally insured Green Dot Bank. The retailer already offers prepaid cards through Green Dot. A MasterCard (MA) debit card can be linked to the GoBank account, which can be set up with a starter kit that costs $2.95. There is a 3 percent transaction fee for using an ATM that is out of network. GoBank is exclusive to Walmart, which will have it available at its stores nationwide by the end of October. The company has more than 11,000 stores in 27 countries.

Monday, June 1, 2015

Another Day, Another All-Time Closing High for the DJIA and S&P 500

NEW YORK (TheStreet) -- The DJIA and the S&P 500 both closed trading on Wednesday at new all-time highs once again. This really is becoming quite boring.

The DJIA was up 20.17 points at 16976.24 and the S&P 500 was higher by 1.30 to close at 1974.62. The Nasdaq was fractionally lower at 4457.73 while the Russell 2000 was down 6.45 points at 1199.50.

Whatever or whoever is causing this stock market to soar into the stratosphere is now irrelevant. The numbers are what they are. This does not mean that as a trader you should just throw in the towel and start buying at these all-time highs.

>>Who Could Take the Reins From Jamie Dimon?

There continues to be an underlying fundamental problem with this market. And that problem is lack of volume or liquidity. You have read enough of my articles to know that the lack of trading volume is a big issue with me. To put that in perspective, the S&P 500 Trust Series ETF (SPY) volume set a new yearly low in 2014 on Wednesday coming in at just over 52 million shares traded. And if you compare the SPY trading volume on July 2, 2014, to July 2, 2013, you will see that the trading volume was three times higher last year, coming in at 154.8 million shares. The argument from old Wall Street pundits will be that it is different this time. It is not different this time. There is a serious lack of the small retail trader and investor in this market. The entire volume is now controlled by the hedge fund community. Those hedge funds act in unison. That is why we are not seeing a selloff taking place. When the machines decide to sell it will be fast and furious. I expect trading on Thursday will be the slowest in memory as the stock market has an early close at 1:00 p.m. EDT. It is now more important than ever to have a risk management trading process in place to navigate around in this market. The Nasdaq index is well into overbought territory. This is being fueled by the tech-heavy stocks. At the same time, the DJIA and S&P 500 are not close to being overbought. The Russell 2000 internal algorithm numbers are heading down. So we have a market that is out of sync. The fact that all indexes have a negative divergence with price creates a risk that most traders and investors do not understand.  That trading process is critical. You need signals that tell a trader when stocks are overbought and oversold. On Wednesday, I covered my Splunk (SPLK) short position from Tuesday with a terrific gain. I also covered most of my Twitter (TWTR) short for a nice gain. This cannot be done without having an internal algorithm signal. The 94% success rate at www.strategicstocktrade.com is all time stamped and cannot be disputed. At the time of publication the author was short TWTR. This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.