PART II OF A THREE PART POST (Interpretation Dec. 18-19, 1999)
Caller: This caller has made some good money off funds heavily weighted in technology and wants Bob's opinion on what he perceives as possible profit taking during January in technology despite the "January Effect". Bob observed that there could be profit taking in January as people wait until next year to sell stocks that have accumulated large gains. Bob added that the so called "January Effect" has changed slightly and seems to be occurring earlier in December when the small caps begin to increase their performance.
EC: Under the "January Effect" theory, stocks of small companies get battered in December but gain in January outpacing the larger issues. Although the "January Effect" doesn't always occur, it about 40 of the last 45 years, small-capitalization companies outperformed larger ones by an average of 5.4 percent.
Caller: This caller noted that many stocks in the market have not participated in the dramatic run ups. Bob agreed but noted that the advance/decline rate topped in spring of 1998 and has not gotton better. Despite that fact, the indexes have increased. Thus, it has been a completely incorrect forecaster of the market.
EC: The advance decline line is a market indicator that shows the difference between stocks that advanced minus stocks that declined. Most analysts use the New York Stock Exchange stocks for the calculation. In general, indicators that use advancing and declining issues in their calculations are called market breadth indicators. There are other market breadth indicators that technical analysts tend to use in their work. Some others include the Advance/Decline Ratio, Absolute Breadth Index, Breadth Thrust, McClellan Oscillator and Summation Index. I will explain these terms as they arise on the show.
Caller: This caller wants to get out of some annuities and wanted to know what does Bob recommend? Bob likes the Vanguard annuity program and the one offered by TIAA-CREF. Bob had no problem with Sue doing a 1935 tax free exchange into a better annuity.
EC: A 1035 Exchange refers to a tax-free method of exchanging an existing life insurance or annuity policy for a new policy with a different company. The number "1035" refers to a section of that concise clearly written document known as the Internal Revenue Code. A 1035 exchange allows the contract owner to exchange contracts, while preserving the original policy's tax basis and deferring recognition of gain for federal income tax purposes.
Caller: This caller holds stocks through a corporation and wanted Bob's advice on how to reallocate his asset allocation while minimizing his taxes. He has $5 million in assets spread over 25 stocks, with one stock (Veritas Software - Nasdaq: VRTS) constituting 20% of his portfolio. Bob suggested he contact a CPA to handle the tax issues and that he prioritize in reducing his exposure to one stock.
EC: Because of the way the word "Veritas" rolled out of Bob's mouth, like a cool peppermint pattie on a hot summer day, makes me think Bob owns the stock. Just a hunch mind you. If he doesn't, perhaps he was just salivating over the great run up in that stock - salivating like you do right before you suck the brains out of a crawfish head (my mother-in-law taught me how to do that). Veritas is an independent supplier of enterprise data storage management solutions, providing advanced storage management software for open system environments. Say what David K? Please dumb that down for me! Sure, I don't even know what I just said. Basically, they are a company that helps other companies save their computer files, back them up and recover them. Now that is something everyone needs today! Perhaps that is why the company's stock has been a stelar performer. If you had $1,800 in January and you invested in Veritas, your shares would be worth $129,000 today! (Veritas is trading in a 52-week range between 18 1/2 to 143).
Caller : Rick wanted to know if Bob's timing model provided any visibility into January. Bob said he would be working on the model in January after more economic data came out. Bob did state that he viewed the bond market as a "raging buy" since the 30-yr bond yield was above 6.25%. (Bob added that Ginnie Maes are looking great). Rick expressed fear over the multiples. Bob concurred noting that the Nasdaq is trading at the highest PE multiple in history and far higher than the multiple afforded to the S&P500.
SUPPLEMENTAL EC ADDED 12/25/2001: Looking back, this call indicates that Bob's timing model may not have turned bearish as of the December 18-19th weekend. However, another comment by Bob later in the broadcast indicates that Bob was already anticipating making major changes to his model portfolios. Read on..
Caller: This caller wanted to know Bob's outlook on two stocks, Metricom, Inc. (Nasdaq: MCOM) and Lumenon Innovative Lightwave Technology, Inc. (OTC Bulletin Board: LUMM). Bob doesn't follow either company. With respect to Metricom, Bob noted the lack of earnings and deduced the stock must be trading on some future perceived value. With respect to Lumenon, the caller said he read about the stock on internet message boards. Bob wisely pointed out that message boards can contain false information that is solely designed to manipulate stock prices.
EC: Lumenon Innovative Lightwave Technology, Inc. designs develops and builds integrated optic devices in the form of compact hybrid glass circuits on silicon chips. (Forget it -- I am not going to even try to guess what that means). Lumenon has traded between $1/4 and $49 this year and dropped fairly significantly this month when a brokerage house issued a sell recommendation in a report suggesting that the company's fundamentals do not support the valuation. Link follows:
biz.yahoo.com
Lumenon quickly responded with a press release stating that they thought the stock was undervalued at current levels and represents an attractive buying opportunity. The company also added that they hoped to achieve full Nasdaq listing in January 2000. Link follows:
biz.yahoo.com
EC#2: Metricom, Inc. (Nasdaq: MCOM) designs, develops and markets wireless network products and services that provide low-cost, easy-to-use data communications that can be used in personal computer and industrial applications. The stock is trading at $81 and has traded in a 52-week range of $4 a share to $104. Although the stock certainly looks more promising that Lumenon, it has negative earnings big time! The company's Ricochet service provides people with internet access, e-mail, and all that good stuff. A caller later in the program, noted that Metricom's two biggest investors are Paul Allen's company and MCI Worldcom. This month, Metricom called for redemption of the Company's Convertible Subordinated Notes due 2003. Link follows:
biz.yahoo.com
Caller: This caller has 6000 shares in Phillip Morris (NYSE: MO) and is worried about it going bankrupt. Bob didn't have much advice as he avoids tobacco stocks completely but noted that their future depends on the outcome of the litigation brought against the company.
EC: Bob decided not to invest in Phillip Morris because of his moral opposition to tobacco companies. The idea of socially responsible investing is gaining acceptance rapidly. Morningstar (which tracks mutual funds) now tracks 70 socially conscious mutual funds compared to 25 in 1993. Indeed, two of Bob's favorite fund families, Vanguard and TIAA-CREF are both planning to offer low-cost socially responsible mutual funds to investors. If this sort of thing is your cup of tea, here is an excellent article that just came out on CBS Marketwatch:
cbs.marketwatch.com
EC#2: Of course, if this sort of thing ain't your bag, baby, or your name is Austin Powers, then perhaps you might want to chat with others at the Politically Incorrect Network at the following link:
fanciful.org
Caller: This caller wants to put some money in Cisco and Lucent. Should he purchase those stocks right now? Bob would dollar cost average into those stocks given their volatility and the unknown variable of whether investors are waiting until next year to take profits in the market.
Caller: What happened to shareholders when American Telephone was forced to split in the 1980s and how would it affect Microsoft shareholders if Microsoft was forced to split. When American Telephone was forced to split in 1980s, shareholders received shares of AT&T as well as shares of the regional operating companies. Those shareholders have made a fortune as a result of the split. Microsoft shareholders aren't too worried about a forced company split -- at least if the American Telephone history lesson repeats itself.
EC: American Telephone and Telegraph, now known as AT&T, used to be called "the Bell System", "Ma Bell" or "the phone company." AT&T's break up came about in 1982 when a U.S. federal court ordered AT&T to answer charges of anticompetitive behaviour. Rather than face a full trial, AT&T agreed to give up ownership of the local phone companies. This break up, occurring in 1984 was called divesture.
Caller: If you own treasury bonds that are held in street name by the broker, are you holdings at risk if a the market crashes or we have a Y2K meltdown? Not if you have SIPC insurance up to the limit of your investments.
EC: The Securities Investor Protection Corporation (SIPC) protects customers of broker-dealers registered with the United States Securities and Exchange Commission, thereby promoting confidence in United States securities markets. The protection is against losses caused by the financial failure of the broker-dealer. Though created by the Securities Investor Protection Act, the SIPC is neither a government agency nor a regulatory authority. It is a nonprofit, membership corporation, funded by its member securities broker-dealers. Want to know more? Check out their web site at the following link:
sipc.org
Caller: This caller's brother died and left his children's investments in the Schwab 1000. Should she sell the fund and transfer into the Total Stock Market? NO. The funds are sufficiently similar in both content and performance.
EC: StockMaster.com is a site that provides good stock charting comparisons. Here is a link to a site that compares the Schwab 1000 Equity Fund with other major indexes.
stockmaster.com
Caller: This caller wanted to know why Bob doesn't recommend that everyone be fully invested during a bull market regardless of age if he has confidence in his timing model. Bob said it would be inappropriate for retirees to be fully weighted in equities. The caller also pointed out that over the last year you would have done better if you investing in a money market fund versus the Ginnie Maes. Bob conceded that point, but said over the last three years you would have done better in the Ginnie Maes.
Caller: This caller will be receiving a large amount of cash via a year end distribution paid by his mutual fund (Putnam Funds). Where does the interest go between the ex date and the payable date? There was about a two week lag time during which the money was not credited to his account and Charlie did not receive the interest. Bob suggested he contact the fund family. Charlie tried, but got the runaround form the Putnam fund family. Bob pointed out he has never recommended that fund family. Sorry, Charlie
EC: This issue was discussed on the Ask Rande thread on Suite101.com. Here is the link if you have similar questions:
suite101.com
READ NEXT POST FOR PART IIII |
