Category: Equity Markets

S&P 500 Index just broke 1000 mark.What is your best guess for YE 2009?

Posted by admin Aug 09, 2009 7 Comments »

It has been an amazing summer with stocks putting together an impressive rally with gains of 10-20% in the last six months. If you look below, the gains are even more impressive – anywhere between 40-50% in different broad market indices.

So is it too good to be true? Maybe.

On one hand it is a sort of relief that markets are finally going up after such a long period of continous stream of bad news. On the other it seems like market is playing head-games with us and will only lead to more damage to our portfolios and retirement plans. All in all, it is a very jittery situation for most of the investors.

SnP500

I am also one of those jittery investors but it has not prevented me from jumping back into the market. It is not that I don’t believe that market is not going to go back down in the near future, but I am concentrating on the long term. Market seems to be perfectly poised for a short term correction after such an impressive rally but this correction will only provide me another opportunity to load up on stocks.

I am optimistic that economy is showing some signs of recovery (such as better than expected jobless rates) and as we start hearing more good news, the stock market will only go up further. I am not invested only until the end of the year but for the rest of my life and that is why I am not too worried about what the YE 2009 value of S&P 500 Index would look like. All I believe is that economy is finally showing signs of life and it bodes well for my allocation to stocks.

Is it possible to beat the market indices ?

Posted by admin Jul 03, 2009 No Comments »

Q: Is it possible to beat the market indices or should I just buy ETFs or mutual funds?

Answer to this question depends on who you ask. Mutual fund managers are obviously trying to beat the sector/asset class benchmark they have chosen. Their belief is that they can select better companies and avoid laggards pulling down the benchmark. They also believe that they can predict when market is going up or down and take appropriate action to take advantage of that movement.

On the other hand, ETFs are designed to follow market indices. Their expenses reduce the returns just below that of benchmark indices. These vehicles are ideal for people who want to minimize their expenses and believe that they cannot beat the market.

My personal belief is that it is difficult to beat the market over a longer period of time, consistently. Obviously there are well known examples of money managers who have been able to beat the market, but I am here talking about majority of the managers.

I also believe that there are periods or pockets of market inefficiencies and only way for a person to take advantage of these opportunities and beat the market is through time commitment, research, and in-depth knowledge.

I am not saying that you should not invest in individual stocks. If you strongly believe that a particular stock is a good bet based on your analysis, then you should definitely go ahead and invest in it. A good bet is too elusive so when you find one, pounce on it.

Will ADM benefit from increasing food prices?

Posted by admin Jun 22, 2009 5 Comments »

Q: What do you think of ADM as a stock pick given food prices are going up?

A: Stocks, such as ADM, can be good inflation hedges if those companies are able to pass along their own costs to the consumers. On the other hand, supply/demand dynamics can influence the price of a company’s product without much change in the cost of production.

ADM is in the right place to capitalize on this supply/demand imbalance which has seen grain prices shoot up. As China is still stockpiling grains to shore up supply for its vast denizens as well as to diversify its portfolio, we can expect the grain prices to hold up. Of course, the risk is that it is only a short term strategy.

Apart from China factor, the US Dollar has devalued resulting in higher commodity prices. I dont foresee, Dollar regaining its value in the short term.

Combining these factor, I believe that ADM might be a good buy for the short term. You should be vigilant against risk factor, such as China stops its stockpiling, US Dollar strengthens, or acreage under cultivation increases. These signs will tell you that its time to sell.