Archive for July 2011
Today, I received an economic commentary from WisdomTree that includes a piece written by Professor Jeremy Siegel. He is a University of Pennsylvania professor and author of several books totting stocks as long-term investments. His piece covers four subjects: economic slowdown, US default, European debt crisis, and corporate earnings. Below, I have excerpted key passages for readers.
On economic slowdown
“Estimate of GDP growth in the second and third quarters have been marked down significantly over the past three months, mainly the result of lackluster consumer demand …US consumer sentiment has plummeted. Much of that is due to the continued stalemate on the budget deficit and politicians talking about curtailing Social Security and Medicare benefits.”
On US default
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I asked my PhD analyst John Want to pull the Harvard Endowment 13F filing for the first quarter of 2011 and find out what has changed sinceour last examination three months ago. From the table of the top 15 holdings that is attached, we can see three changes:
1. The iShare S&P 500 Index ETF is no longer among the top 15 holdings. Though there are still a number of individual U.S. stocks among the top 15, their relative weights have decreased. Does that signify Harvard is a tad less bullish on U.S. equities over all?
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MZ Capital 40/60 Portfolio Model
This report shows the construct and performance of a 40/60 model portfolio.
Asset Classes and Fund Selection
There are six asset classes in this portfolio model. The asset allocation is implemented using DFA funds, as shown in the table 1. I explained why DFA funds are better than Vanguard funds here.
| Table 1: Asset Class Funds | ||
| Asset Class | Percentage | Funds |
| US Equity | 10% | DFFVX – US Targeted Value Fund |
| International Equity | 10% | DISVX – International Small Cap Value Fund |
| Emerging Markets | 10% | DFEVX – Emerging Market Value Fund |
| REIT | 10% | DFREX – Real Estate Securities Fund |
| TIPS | 20% | DIPSX – Inflation-Protected Securities Fund |
| Treasuries | 20% | DFIHX – Short-Term Treasuries Fund |
| Muni Bonds | 20% | DFSMX – Short-Term Muni-Bond Fund |
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On July 8, Morgan Stanley downgraded Google. Their reasons?
Given Google’s aggressive hiring plans, rising compensation costs and heavy advertising spending on Chrome and other products, the company’s EBITDA margins will decline this year and next year.
Morgan Stanley said Google is on pace to add 7,000 new staffers this year, well above the previous estimate of 4,000 new hires.
Investors, presumably including many of Morgan Stanley’s own wealth management clients, promptly sold off GOOG, causing its stock to tumble 3% that day.
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If the recent headlines make you feel like the international financial order is heading toward a cliff, I would not blame you. Apparently, the Europeans have managed to spread their sovereign debt crisis from Greece to Italy, a far more significant country for the world economy. Here in the US, politicians are engaged in high-stakes political brinksmanship regarding raising the debt ceiling, without which the US will go into default for the first time in its history.
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Recently, I came across a 20 Year Periodic Return Table prepared by Black Rock. I want to share this with you since this table illustrates the investment principles I have been emphasizing: 1) asset class diversification; 2) disciplined rebalancing; and 3) small value tilt. Today’s focus is on 1); the other two points will be discussed in future articles.
20 Year Asset Class Returns
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9. Is Managed Futures an Asset Class?
8. Recession and Stock Market Performance
7. Will Greece Sink Your Portfolio?
6. The 2011 Estate Tax Changes (by Christopher Guest)
5. America’s Top Financial Advisors: How Are They Made?
4. Variable Annuity Fees You Don’t Know You Are Paying
3. Bonus Depreciation: Congress Wants Businesses to Invest in 2011 (by Jeremy Bendler)
1. Profit From Harry Dent’s Prediction? Thank Again
The Investment Scientist 