THE MARKETS
Which stock characteristic most impacted the S&P 500's
performance in 2011?
To answer that question, Bespoke Investment Group performed a
decile analysis and concluded that having a high dividend yield was
the most important factor affecting stock prices in 2011.
In their analysis, they discovered that the three deciles with
the highest dividend yield were the only ones to experience a
positive return for the year. In fact, while the S&P 500 index
was unchanged for the year, the top three highest-yielding deciles
rose 10.4 percent, 6.4 percent, and 8.7 percent, respectively. The
remaining seven deciles all experienced a loss for the year.
Now, it won't always turn out that the highest dividend yielding
stocks are the best performers. Some years, investors will be more
adventurous and bid up the riskier stocks that tend to pay low or
no dividends.
Will the tide turn in 2012 and see the outperformance of the low
or no dividend stocks? A lot will depend on how the economy shakes
out.
Based on last week's unemployment report, it looks like we ended
2011 with some economic momentum. The U.S. economy added 200,000
jobs in December and the unemployment rate dropped to 8.5 percent,
the lowest in almost three years, according to BusinessWeek.
This week marks the beginning of another quarterly earnings
season so the next 30 days or so should give us a good indication
of the strength of the underlying economy.
|
Data as of 1/6/12
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
|
Standard & Poor's 500
(Domestic Stocks)
|
1.6%
|
1.6%
|
0.5%
|
11.0%
|
-2.0%
|
0.9%
|
|
DJ Global ex US
(Foreign Stocks)
|
0.2
|
0.2
|
-16.1
|
7.7
|
-4.9
|
4.3
|
|
10-year Treasury Note
(Yield Only)
|
2.0
|
N/A
|
3.4
|
2.5
|
4.7
|
5.1
|
|
Gold
(per ounce)
|
2.7
|
2.7
|
18.1
|
24.0
|
21.5
|
19.2
|
|
DJ-UBS Commodity Index
|
1.3
|
1.3
|
-10.3
|
4.9
|
-1.9
|
4.4
|
|
DJ Equity All REIT TR Index
|
-0.2
|
-0.2
|
7.8
|
20.8
|
-1.2
|
10.1
|
| Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS
Commodity Index returns exclude reinvested dividends (gold does not
pay a dividend) and the three-, five-, and 10-year returns are
annualized; the DJ Equity All REIT TR Index does include reinvested
dividends and the three-, five-, and 10-year returns are
annualized; and the 10-year Treasury Note is simply the yield at
the close of the day on each of the historical time
periods.Sources: Yahoo! Finance, Barron's, djindexes.com, London
Bullion Market Association.Past performance is no guarantee of
future results. Indices are unmanaged and cannot be invested into
directly. N/A means not applicable or not available. |
WERE THE "NIFTY-FIFTY" REALLY THAT NIFTY? Back
in the early 1970s, pundits fawned over some of the era's fastest
growing, industry-leading companies who seemed to defy the sluggish
overall economy. Dubbed the Nifty-Fifty, these glamour stocks were
well-known "one-decision" stocks that institutional investors
clamored to own. So, how well did these stocks do over the last 40
years? Were they truly "one-decision" stocks?
While there was no official list of the Nifty-Fifty, two
competing lists of 50 stocks are commonly cited, according to a
research report titled, "The Nifty-Fifty Re-Revisited," by Jeff
Fesenmaier and Gary Smith of Pomona College. For today's purpose,
we'll look at the 24 stocks that made both lists and were dubbed
the "Terrific 24" by Fesenmaier and Smith.
Some of the household names on the Terrific 24 list include:
McDonald's, Walt Disney, Avon, Johnson and Johnson, and Coca-Cola.
These companies are still doing well. However, some other household
names on the Terrific 24 list performed poorly. Consider the
following:
Xerox: It's still around, but is a shadow of
its former self and trades for about $8 per share.
MGIC Investment Corp: It went through various
corporate restructurings throughout the years, but is still around
as a private mortgage insurer. However, it got battered in the
mortgage insurance meltdown of recent years and trades for about $4
per share.
Polaroid: The inventor of instant film couldn't
make the transition to a new world and filed for bankruptcy in
2001.
Eastman Kodak: Perhaps the saddest story of the
bunch, Kodak has struggled for years to make the transition to a
digital world and is now rumored to have filed for bankruptcy as
early as this month, according to Reuters. Its stock sold for less
than 50 cents per share last week. Ironically, Kodak invented the
digital camera in 1975, but was never able to capitalize on it.
With 40 years of history, here are three key lessons we can
learn from the Nifty-Fifty story:
- Some "glamour" stocks do remain glamorous for many years, e.g,
McDonald's, Walt Disney, and Coca-Cola (although each had its
"rough periods" over the past 40 years).
- Promoting "one-decision" stocks is more of a headline-grabbing
marketing strategy than a sound investment strategy.
- Even the "best" stocks can fall to zero so it's important to
have a sell discipline.
As the British statesman and philosopher Edmund Burke said,
"Those who don't know history are destined to repeat it."
WEEKLY FOCUS
The supreme purpose of history is a better world.
--Herbert Hoover, U.S. President
For your convenience the sources have
been listed below:
http://www.bespokeinvest.com/thinkbig/2012/1/6/2011-in-a-nutshell.html
http://www.businessweek.com/ap/financialnews/D9S3KP6O0.htm
http://finance.yahoo.com/q?s=XRX&ql=0
http://finance.yahoo.com/q?s=MTG
http://www.forbes.com/forbes/2002/1125/196.html
http://finance.yahoo.com/news/Kodak-prepares-Chapter-11-reuters-185150...
