Month: January 2015

Investment Trend for 2015: Strong US Dollar

In 2014, the dollar gained on the Euro, Pound and Yen. In 2015, many analysts expect the dollar to grow stronger.

Is 2015 the year of an even stronger US Dollar?

Barron’s enumerated the ways in which a strong dollar impacts the global economy.

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Will an extra second disrupt banking and trading systems ?

Because the earth rotation is slightly slowing, there is a need to add an extra second to sync clocks to the earth’s rotation. On June 30, a “leap second” will be added by the International Earth Rotation Service in Paris.

For us people, that action may be unnoticeable, but not so for computers. When a leap second was last added in 2012, Mozilla, LinkedIn, Reddit and other websites crashed. Will adding an extra second affect banking and trading platforms that are becoming increasingly dependent on the computers and the internet?

According to a report in the Telegraph, US delegates at the conference in Geneva in 2012, opposed adding leap seconds since this action may disrupt timed money transactions, among other things. However, experts believe that this is a better option than adding leap minutes in the future to catch up. The Earth’s rotation may also slightly speed up, so removing a second is also a possibility.

 

Seeking Alpha

Investors seek “alpha”.

Alpha is the measure of investment performance over a benchmark.

If your portfolio earned 11% and the benchmark (e.g. S&P 500, MSCI world, PSE All-Shares Index) earned 10%, your portfolio has an alpha of +1. If your portfolio return is 9% and the benchmark return is 10%, your portfolio has an alpha of -1.

If your portfolio has a negative alpha, it might have been better (and cheaper) if you just invested in a portfolio that tracks the benchmark.

This is probably why a very popular investment website is named Seeking Alpha.

http://seekingalpha.com/

Investment Trend for 2015…. Stock Picking

In the years following the financial crisis of 2008-2009, due mostly to quantitative easing (or QE… most people know QE as “bailout”), stock prices became highly correlated. This made it difficult for investors to gain alpha through stock picking.  Since the US Federal Reserve announced the end of the QE programme, stocks are starting to become less correlated. Analysts expect stock correlation to drop even more and stock volatility to increase in 2015. Stock pickers (the good and the lucky) may be picking up alpha as well.

 

Read the report on CNBC.

http://www.cnbc.com/id/102249335#.

 

It’s January… time for the “January effect”.

The January effect pertains to the stock rally usually observed during the first month of the year. These are some of the reasons attributed to this:

 

  • Investors sell off their stocks in December to create losses to offset some of their gains for the year. They do this to reduce taxes. Investors start buying again in January which leads to a rally.
  • During the holidays, people are busy with holiday-related activities such as shopping, partying, vacationing, etc. People also use most of their available funds for holiday spending. In January, people may be more focused on the market. Those who experienced spending “fatigue” may use their available funds to invest instead when January comes.
  • People  who “promise” to themselves that they will start investing will likely do so at the start of the year. After all, “New Year’s resolutions” are executed in January. This is the time when people start doing responsible activities such as exercising, dieting, taking up a new hobby, organizing stuff… and investing.
  • Investors tend to be optimistic at the start of the year. This optimism leads to a rally.

 

Start watching the markets, and you might just catch a rally.