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I thought it might be illustrative to look at two Dividend Kings with a nearly identical beta, but with very different average annual returns over the last five years (through July 2022): Lowe’s Companies Inc [LOW] and Stanley Black & Decker Inc [SWK].

Beta says both companies were 25% more volatile relative to the market, but Lowe’s vastly outperformed the market (the S&P 500 Index, indicated by the ticker GSPC) and Black & Decker grossly underperformed the market. Please take my word; including the effect of dividends, reinvested or not, would not have materially affected the magnitude of the performance difference in these two stocks. As we’ll see, there’s more to beta than meets the eye.

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On Beta (Part 2 of 3)Read More »

If you look up summary data on a given ticker symbol on a broker’s webpage or say, Yahoo! Finance, you’ll encounter various statistics on the price, price ranges, volumes, earnings, outstanding shares, dividends, etc. Here’s a look at the summary data for American States Water [AWR] on Yahoo! Finance, after trading hours on August 9, 2022.

Most of these are either self-explanatory or easily understood with context. There is one item, however, that offers no real clues as to what it is and what it says about the stock you’re looking at: Beta.

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On Beta (Part 1 of 3)Read More »

There has been much discussion over the past few months of whether we’re heading into a recession or are already in a recession. You might be wondering why we don’t know the answer. There is an official definition, but it is subjective in nature. The Business-Cycle Dating Committee of the National Bureau of Economic Research (NBER) officially certifies and dates our business cycles. Their definition: a recession is “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.” That does leave a bit to the imagination and so economists rely on various indicators.

One common rule of thumb: If the gross domestic product (GDP) declines two quarters in a row, you have a recession. The GDP has fallen two consecutive quarters. But countering that has been the pronounced uptick in our latest jobs report. And there are time lags in the reporting of most economic indicators that adds to the confusion. There is another indicator that economists and investors alike use. It is routinely described as a harbinger in articles and the news, but it is seldom explained why it is used. Those sources typically avoid showing what it looks like. It is the yield curve.

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Yield Curve InversionRead More »

If someone puts their money in an index fund or similarly, a target retirement date fund, they are passive investors. If someone purchases stocks and bonds directly, they’re considered active investors. But people can buy and sell stocks willy-nilly. Maybe because Jim Cramer is hyping a stock. Maybe because they like the product made by a certain company. Perhaps they have FOMO on some new fad. That’s not real investing. That’s more speculative in nature or just trading.

Someone might argue “Hey, Warren Buffett owns Coca-Cola [K], why is it investing if he does it, and speculating if I do it.” Comparing yourself to Buffett huh? Listen, I suppose it isn’t about the stock, but the person. If you bought K because Warren Buffett has it, then you just might be a speculator. Stock ideas come to us from all over and honestly, I’m not judging. Speculation has its place, as does options trading, etc. I enjoy both. There are many approaches to making money in the stock markets, but in every case, one must be a risk manager and exercise some discipline, or the approach will falter over the long haul. Discipline and risk management are a topic for another day. Back to investing: if you really want to be an active investor and feel engaged, you should do at least two things.

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What is Active Investing?Read More »

On April 7, 2003, the Syracuse Orangemen defeated the favored Kansas Jayhawks 81-78 to claim the Division I Men’s College Basketball championship. Certainly, future NBA Hall of Famer Carmelo Anthony, did his part putting up 20 points and collecting 10 rebounds, but it was the freshman Gerry McNamara that made the difference for SU that day. He hit 6 of 8 three pointers in the first half putting Syracuse up 53-42 at the break. Kansas played catch-up the rest of the game and couldn’t quite get there. Of course, making only 12 of 30 free throws is a surefire way to lose most ball games, let alone a championship against a talented team.

How unlikely was G-Mac’s first half performance? Well, it stands as the record for threes made in a half of a championship game. G-Mac was able to hit 6 or more threes in a game a total of 9 times in 135 games. I do not believe he ever hit 6 in a single half before or after the game against Kansas. So that’s once in 270 halves. In fact, the odds of making exactly 6 of 8 threes for a player whose ultimate success rate turned out to be 400 of 1,131 (35.4%) is 2.3%. That means if you turned G-Mac loose into 135 games and he took exactly 8 threes in every half, you’d expect him to hit 6 in a half a total of 6 times.

That first half was unlikely.

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Reversion to the MeanRead More »