January Barometer - Full Month

This article is about the second of the "January barometers". This uses the full month of January's market returns to help you decide whether to buy or sell into the rest of the year.

The market returns of the full month of January predicts the market returns for the full year with an accuracy of approximately 75%.

If you like going with historical numbers, then start with the "First Five Days" barometer. If the first five days of January are down, then you have this to watch as a backup.

January Barometer - First Five Days

There are three "January barometers" for whether you should buy or sell into the rest of the year which use January as the gauge. I will cover the first in this article.

The first five days of the trading year have shown with approximately 85% accuracy when you should buy into the market. When the first five trading days of the year are up, the market it is up 85% of the time for that full year. When the market is down in the first five trading days the market is down approximately 50% of the time.

The first five trading days of 2006 start today, January 3rd, and end at the market close on January 9th.

Mad Money Posts

I will stop publishing Jim Cramer's Mad Money picks, as I have found a page on Cramer's TheStreet.com that tracks them.

Stock Screening - Dividends

Screening for stocks is an easy way to find stocks to invest in. You can select your criteria, or someone else's, and find stocks that you may want to invest in. As always I would recommend researching any stocks before investing in them.

Zacks ranks stocks based on their own criteria, based on increasing or decreasing earnings estimates. They claim a pretty good annual return for investing in their highly ranked stocks.

This weeks article is about screening for dividend stocks. Kevin Matras has found a strategy that through back-testing easily beats market returns.

Here is his dividend paying stock criteria:

• Price >= $10
• Market Cap >= $500 million
• Zacks Rank <= 3
• No analyst sell ratings
• Current Dividend Yield >= 8%

October Returns

Index	Month	Year
Dow	-1.2%	-3.2%
Nasdaq	-1.5%	-2.9%
S&P 500	-1.8%	-0.4%
Russell 2000	-3.2%	-0.8%
Wilshire 5000	-1.8%	0.8%

Dividend Stocks = Growth Stocks?

Most people assume that dividend paying stocks are generally slow growing and are worth more for their dividend than for their stock appreciation. A study published in a 2003 Financial Analysts Journal may show that these assumptions aren't necessarily correct.

SmartMoney magazine has an article about some research done by a pair of money managers. Robert Arnott, former global equity strategist at Solomon Brothers along with Clifford Asness, who runs a hedge fund in Connecticut published the article, "Surprise! Higher Dividends = Higher Earnings Growth". This research took data from the past 130 years, but focused on the past 60 years.

The research showed that the top 25% of S&P 500 stocks as ranked by payout ratio showed better growth than the bottom 25%. They found that the sweet spot for the dividend paying companies showing the most earning growth had a payout ratio between 60% and 80%. They suggest that this growth may be due to the companies not having money to spend on large acquisitions which often stall earning growth. Another possible reason for the high payout ratio may be that management has high confidence in their company.

September Returns

Index	Month	Year
Dow	0.8%	-2.0%
Nasdaq	0%	-1.5%
S&P 500	0.7%	1.4%
Russell 2000	0.2%	2.5%
Wilshire 5000	0.6%	2.7%

ETF Portfolio - Yale Lazy Man

MarketWatch has added another ETF portfolio. The "Yale Lazy Portfolio" was created by David Swensen. He is the portfolio manager for the Yale University endowment fund which has returned over 16% for the past 20 years. He is also the author of "Unconventional Success"

Allocation	Fund	Symbol
30%	Total Market Index	VTSMX
20%	Total InternationalStock Index	VGTSX
20%	REIT Index	VGSIX
15%	U.S. Treasury Bond Index	VFISX
15%	TIPS: Inflation Protected Securities	VIPSX

• One-year return of 16% vs. S&P 500 return of 11.5%
• 3-year return of 16% vs. S&P 500 return of 13%
• 5-year return of 6.4% vs. S&P 500 return of -3%
• 20-year return of 16%

ETF Portfolio - Margarita

Here is another ETF portfolio from MarketWatch. This one is called the "Margarita Portfolio", due to it's three equal parts. This one is also from Scott Burns who created the "Couch Potatoe Portfolio".

Allocation	Fund	Symbol
33%	Total Stock Market Index	VTSMX
33%	Total International Stock Index	VGTSX
33%	Inflation Protected Securities Fund	VIPSX

• One-year return of 12.75% vs. the S&P 500 return of 8.4%
• 3-year return of 10% vs. the S&P 500 return of 6%

ETF Portfolio - Couch Potato

MarketWatch has another article about an ETF portfolio. This one was created by Scott Burns. Scott Burns is one of America's top financial columnists who is nationally syndicated with the Dallas Morning News. He is a co-author of the best-selling "The Coming Generational Storm", the definitive work on the social security and medicare deficits.

Allocation	Fund	Symbol
50%	S&P 500 Index	VFINX
50%	Total Bond Fund Index	VBMFX

ETF Portfolio - Lazy Man

MarketWatch’s top ETF portfolio for 2004 was Ted Aronson’s "Lazy Man’s Portfolio". Ted Aronson is the head of AJO Partners. AJO Partners manages about $20 billion of institutional tax-exempt retirement funds. TheStreet.com named him "the world’s most honest money manger." He served as the Chairman of the Board of Governors of the Association of Investment Management and Research, the leading professional organization for money managers.

Allocation	Fund	Symbol
5%	Wilshire 5000	VTSMX
15%	S&P 500	VFINX
10%	Wilshire 4500 Mid-Cap / Small-Cap	VEXMX
5%	MSCI US Small-Cap Growth	VISGX
5%	MSCI US Small-Cap Value	VISVX
15%	Emerging Markets	VEIEX
10%	Pacific Stock Index	VPACX
5%	European Stock Index	VEURX
10%	TIPS: Inflation-Protected Securities	VIPSX
10%	High-Yield Corporate	VWEHX
10%	Long-Term Treasury	VUSTX

Why?

• 2003 return of 30%
• 2004 return of 15%
• Passive, well-diversified asset-allocation with no rebalancing

ETF Portfolio - No-Brainer

Another of MarketWatch's ETF portfolios. Bill Bernstein is a financial adviser, SmartMoney columnist, author of the Intelligent Assett Allocator, and a practicing neurologist. He is also the creator of the "No-Brainer Portfolio".

Allocation	Fund	Symbol
25%	S&P 500 Index Fund	VFINX
25%	Small Cap Index Fund	NAESX
25%	European Stock Index Fund	VEURX
25%	Total Bond Market Index Fund	VBMFX

Why?

• 14% return last year
• has beaten 90% of professional money managers over past 10 and 20 years with less risk
• return of 3.52% over the past 5 years
• return of 9.15% over the past 10 years
• return of 10.29% over the past 15 years
• return of 11.69% over the past 20 years

ETF Portfolio - Coffeehouse

MarketWatch offers articles on different types of exchange traded fund portfolios. Here is information on Bill Schultheis's Coffeehouse Portfolio from an article in January. Bill Schultheis was a Salomon Smith Barney broker, and author of "The Coffeehouse Investor".

Allocation	Fund	Symbol
40%	Total Bond Market Index	VBMFX
10%	S&P 500 Index	VFINX
10%	Large-Cap Value Index	VIVAX
10%	Small-Cap Index	NAESX
10%	Small-Cap Value Index	VISVX
10%	Total International Stock Index	VGTSX
10%	REIT Index	VGSIX

Why?

• has beaten the S&P 500 4 of the last 5 years
• missed 40% during internet boom, but made 15% annually over S&P 500 from 2000-2002
• hasn't had to be reallocated in last 5 years
• back-tested 10 years showing a 10.8% return
• from January 2000 to January 2005 has shown a 38% return vs -13% return for the S&P 500

Consider Donating to the Hurricane Victims

Please consider donating to the Salvation Army to help the victims of Hurricane Katrina.

August Returns

Index	Month	Year
Dow	-1.5%	-2.8%
Nasdaq	-1.8%	-1.5%
S&P 500	-1.1%	0.7%
Russell 2000	-1.9%	2.3%
Wilshire 5000	-1.2%	2.1%

September is Looming

Remember that historically September is the worst month of the year for stocks.

Reducing Shares

Jason Zweig of Money Magazine says keep track of the number of outstanding shares companies have on the market. Companies will often issue more shares when they think the companies stock is overvalued, and they will buy back stock if they feel the stock is undervalued. Each 1% reduction in shares will increase the stock's return by approximately 0.25% versus similar stocks.

Barron's - Value Line - Favorite Mutual Funds

The August 15 edition of Barron's has the results of Value Line's top performing mutual fund managers survey. Their favorite mutual fund overall was the Fairholme fund. Their favorite funds in each category are below.

Fund Name	Fund Objective
Bridgeway Aggressive Investors I	Agressive Growth
Oppenheimer Real Asset A	Asset Allocation
Oakmark Equity & Income I	Balanced
SB Capital & Income SmB B	Flexible
BlackRock International Opportunities A	Foreign Equity
First Eagle Global A	Global Equity
Fairholme	Growth
Jennison Equity Opportunity A	Growth / Income
PIMCO Commodity Real Return Strategy A	Income
Bjurman, Barry Micro-Cap Growth	Small Company
*Cohen & Steers Realty Shares	Real Estate

* The real estate pick is not from Value Line, but I think there is a place for REITs in the average investors portfolio, so I have added this as an option.

Family-Run Public Companies

Henry McVey, an equity strategist for Morgan Stanley, researched several family-run public companies. His findings were that these companies have done well for the companies investors. He found that the 63 companies in the S&P 500 that would fall into the category have outperformed the index over the past year, 3 years, and 5 years.

Most important for investors were his findings that companies where the family members did not have any more influence than the average investor performed the best. Next were the stocks where family members helped steer the company, but still held the same share class as average investors. Finally the worst performing of the groups were the family's that had super-voting shares. The last group also underperformed the index also.

IPOs - Historical Performance

IPOs (Initial Public Offerings) is the first sale of a companies stock to the public. This price of the initial offering is set for investors who have access to the brokerages offering the stock. But when the stock becomes available on the open market, the price is often volatile for the first several days.

Jay Ritter, a finance professor at the University of Florida, says his research shows that historically, companies with less than $50 million in sales have underperformed the market after going public, while those with sales above $50 million generally outperform. Stocks also tend to experience a price jump in the first six months after the IPO before lockups typically expire, he added. "Companies tend to get the first few quarters right on earnings, then they trail off," Ritter said.

People interested in investing in IPOs should do a lot of research into the companies before they invest, as many offerings will trade down on their first day of trading.