George Morgan's Blog

There are two elements of the financial return that owners of common stock experience; capital gains and dividends. Dividends tend to be the ugly stepchild of the Financial Services Industry because they don’t make any money off of them. Last year, if you owned a portfolio consisting of entirely Dow component stocks you would have received a dividend payment in the neighborhood of 3.2%, nothing like the 31% return on the S&P 500, but nothing to scoff at.  Your dividend return can nev...

I have a friend who has a very nice portfolio of 25, low P/E, big cap stocks, all of which are in the top 50 of the S&P 500. He told me that he had some Caterpillar stock that had been doing really well and some Ford stock that has done poorly. He asked me if it was a good idea to sell the Caterpillar stock, since it had done so well and put it into the Ford stock because it might turn around. First problem, it’s in a non-tax sheltered account, so he would have to pay capital gains on the...

I have spent the last four years preaching that financial professionals and professional money managers underperform the market because the market is efficient and they charge too much.  Last Saturday I found a surprising ally in The Wall Street Journal. In their Weekend Investor section there is any article entitled “You’re Paying Too Much in Fees.” It states that “Investors face an array of often excessive charges. Here’s how to get the most from your money.” It then gives the followi...

With the Dow Jones Industrial Average currently at an all-time high, it is not unusual to see and hear comments about some form of a market pullback. Markets don’t just keep continually going up and up in a straight line. Their charts look more like saw teeth that a rocket trajectory.  Several observations are appropriate at this point. First of all, stock prices in general are not at bubble prices levels and there is no indication of any speculative activity. Prices are only slightly ab...

It is well documented that actively managed stock mutual funds underperform the market. A new study documents that members of the general public who use actively managed mutual funds perform even worse than the funds themselves. Dalbar, a financial research firm in Boston, has studied individual investor and market returns for the last thirty years. Their research showed that for that period, the S&P 500 stock index had an 11.1% annualized return. During that same period, investors in act...

FINRA, the regulatory body of the brokerage business is proposing a new electronic data collection system that would transform how the regulators scrutinize brokers. The proposed system would collect, on a weekly basis, on all activity at the more than 4,100 national brokerage firms. It will be looking for evidence that a firm or broker was trying to take advantage of client.  These no no’s would include such things as excess trading or commissions, switching one mutual fund to another o...

In his latest Letter to Shareholders of Berkshire Hathaway, Warren Buffett reveals that when he dies he has directed his financial advisors to take the money that goes to his wife and put 90% of it in Vanguard's S&P 500 index fund. As part of the coverage that accompanies the Berkshire Annual Meeting, the Omaha World Herald did a story on this and asked several local brokers for their opinion. Their response was “that’s okay for Buffett, but not for the average investor.” Their justi...

Over the weekend, I had a chance to visit with a friend of mine who had just retired after 30 years as a mutual fund portfolio manager. He had retired a bit earlier than the normal 65 and told me the reason for his early departure was because it had grown increasingly difficult to beat the market. The fund he managed was a plane vanilla fund that focused primarily on large cap stocks and was neither value nor growth oriented. He bemoaned the fact that when we work together back in the eightie...

I am seeing and hearing commentary about the market increasing in volatility and that we are headed for some kind of a pullback. That is a possibility, it is always a possibility. The $64,000 question is what should you do about it? I heard one commentator yesterday saying that it’s time to take a little money off the table. How much money is a little money? One third of your portfolio? One half of your portfolio or ninety percent of your portfolio? That means you may not lose money on the do...

I was recently asked by an individual, “How and when should you rebalance a buy and hold portfolio of individual stocks.” My first response was “Why. “To which the individual replied, “Well, because some of the positions have gotten much bigger than the others." Right off the bat, rebalancing on a calendar basis makes absolutely no sense. Secondly, the conventional wisdom is that you sell the ones that have been going up because they might not continue to go up and you buy the ones in been go...