The Investment Scientist

Posts Tagged ‘S&P 500

EIA Salesman

Typical Salesman’s Chart for EIA

Financial author Allan Roth once wrote an article called “Investment Trick – Annuity Style” where he asks a rhetorical question, “If the S&P 500’s total return is 12% in a given year, what do you think your equity index annuity (that is supposed to track the S&P 500) would return”?

  1. 10%
  2. 8%
  3. 5.4%
  4. 3.4%

Allan Roth goes on to explain why the correct answer is 3.4%. Boy, was he wrong! Read the rest of this entry »

New York Stock Exchange

New York Stock Exchange

Recently, I got a call from a physician client of mine who asked a fantastic question. The Shiller PE of the S&P 500 index is at 24 now, much higher than the historical mean of 16 – is the market headed for a fall?

What is the Shiller PE?

This is a stock market metric invented by Yale Professor Robert Shiller. Basically, it is the average of the PE ratios of ten consecutive years. Because of that, Shiller PE is also called PE10.

Professor Shiller found it to be a reasonably good measure of valuation of the whole market: the higher the Shiller PE, the more expensive the market.

Back to my client’s question, I told him right away that I don’t know the answer. I don’t make investment decision based on opinion. I have to research historical data. After I hung up the phone, I asked my assistant to study the relationship between the Shiller PE and forward one-year and forward three-year returns.

Read the rest of this entry »

New York Stock Exchange

New York Stock Exchange

The S&P 500 closed the first quarter at a record high. Should that worry investors? The short answer is, No.

When the market was 30% below the high three years ago, I did some research. I categorized all market conditions into:

1. Breaking a new high.

2. Less than 10% below historical high.

3. Between 10% and 20% below historical high.

4. Between 20% and 30% below historical high.

5. Between 30% and 40% below historical high.

6. More than 40% below historical high.

Then I calculated the one year forward returns of the six conditions.

Read the rest of this entry »

house for sale

House for sale

Recently, a client called to tell me that he had finally got the big boulder off his back, and it was such a relief for him.

The “big boulder” he referred to was his big house, with a swimming pool and a tennis court. The house had been costing him $100k a year in property taxes and upkeep, more than 50% of my client’s retirement income. No wonder he called it a big boulder on his back.

He bought the house 25 years ago for $2.2mm, and he just sold it for $2.1mm. After all the costs associated with selling the house, he took home $2mm and change.

Read the rest of this entry »

Recession Stock Market

Three years ago, at the onset of the recession, I performed research analyzing the previous nine recessions after WWII and wrote an article “Recession and Stock Market Performance” based on that research.

Given that I am not clairvoyant – unlike many market pundits and some fellow financial advisors – I can’t see the future. I can only use my research of the past to frame my perspective of the future.

I came away with two conclusions:

Read the rest of this entry »

Look beyond comfort zoneIf you are like most investors, your equity portfolio will have a few auspiciously named stock funds and a few company stocks you feel comfortable with. You think you are well-diversified, but you really are only investing in the universe of the S&P 500 – the largest 500 stocks of the US equity market.

Read the rest of this entry »

The recession is very likely over.” – Fed Chairman Bernanke on 9/15/09.

What does the fed chairman’s statement mean for stocks, if indeed the worst recession since 1929 is over? We don’t know for sure. We can, however, let history be our guide.

In this spirit, I studied the one-year and three-year returns of the S&P 500 Index and the Fama/French Small Cap Value Index coming out of a recession for the nine recessions since 1950.

Read the rest of this entry »


Author

Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC.

Twitter: @mzhuang

Error: Twitter did not respond. Please wait a few minutes and refresh this page.

Archives

%d bloggers like this: