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Investor Education
Market Return After Exceptional Years
Dollar Cost Averaging Tool
Dow Theory: The Formation of a Line
Dividend Capture Strategy Analysis
Golden Cross – How Golden Is It?
Debunked – Death Cross
Work Smart, Not Hard
Charles H. Dow, Father of Value Investing
It's All About the Dividends
Dow Theory: Buying in Scales
How to Avoid Losses
When Dividends are Canceled
Cyclical and Secular Markets
Inflation Proof Myth
What is Fair Value?
Issues with P-E Ratios
Beware of Gold Dividends
Gold Standard Myth
Lagging Gold Stocks?
No Sophisticated Investors
Dollar down, Gold up?
Problems with Market Share
Aim for Annualized Returns
Anatomy of Bear Market Trade
Don’t Use Stop Orders
How to Value Earnings
Low Yields, Big Gains
Set Limits, Gain More
Ex-Dividend Dates -
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Historical Data
1290-1950: Price Index
1670-2012: Inflation Rate
1790-1947: Wholesale Price Cycle
1795-1973: Real Estate Cycle
1800-1965: U.S. Yields
1834-1928: U.S. Stock Index
1835-2019: Booms and Busts
1846-1895: Gold/Silver Value
1853-2019: Recession/Depression Index
1860-1907: Most Active Stock Average
1870-2033: Real Estate Cycles
1871-2020: Market Dividend Yield
1875-1940: St. Louis Rents
1876-1934: Credit-New Dwellings
1896-1925: Inflation-Stocks
1897-2019: Sentiment Index
1900-1903: Dow Theory
1900-1923: Cigars and Cigarettes
1900-2019: Silver/Dow Ratio
1901-2019: YoY DJIA
1903-1907: Dow Theory
1906-1932: Barron's Averages
1907-1910: Dow Theory
1910-1913: Dow Theory
1910-1936: U.S. Real Estate
1910-2016: Union Pacific Corp.
1914-2012: Fed/GDP Ratio
1919-1934: Barron's Industrial Production
1920-1940: Homestake Mining
1921-1939: US Realty
1922-1930: Discount Rate
1924-2001: Gold/Silver Stocks
1927-1937: Borden Co.
1927-1937: National Dairy Products
1927-1937: Union Carbide
1928-1943: Discount Rate
1929-1937: Monsanto Co.
1937-1969: Intelligent Investor
1939-1965: Utility Stocks v. Interest Rates
1941-1967: Texas Pacific Land
1947-1970: Inventory-Sales Ratio
1948-2019: Profits v. DJIA
1949-1970: Dow 600? SRL
1958-1976: Gold Expert
1963-1977: Farmland Values
1971-2018: Nasdaq v. Gold
1971-1974: REIT Crash
1972-1979: REIT Index Crash
1986-2018: Hang Seng Index Cycles
1986-2019: Crude Oil Cycles
1999-2017: Cell Phone Market Share
2008: Transaction History
2010-2021: Bitcoin Cycles -
Interesting Read
Inside a Moneymaking Machine Like No Other
The Fuzzy, Insane Math That's Creating So Many Billion-Dollar Tech Companies
Berkshire Hathaway Shareholder Letters
Forex Investors May Face $1 Billion Loss as Trade Site Vanishes
Why the oil price is falling
How a $600 Million Hedge Fund Disappeared
Hedge Fund Manager Who Remembers 1998 Rout Says Prepare for Pain
Swiss National Bank Starts Negative
Tice: Crash is Coming...Although
More on Edson Gould (PDF)
Schiller's CAPE ratio is wrong
Double-Digit Inflation in the 1970s (PDF)
401k Crisis
Quick Link Archive
Monthly Archives: January 2013
Richard Russell Review: Letter 554
Dow Theory Letters Issue 554 was written on February 7, 1973. At the time, the Dow Jones Industrial Average was indicated to be at the 968.32 level. This was at a point prior to the Dow Industrials declining –40% while the Dow Transports declined –37% to the late 1974 lows.
NLO Q&A
Subscriber F.H. asks:
“[Have you] ever consider[ed] constructing a market trend indicator like Richard Russell’s PTI?”
Our Response:
This is a great question and one that we’ve examined in the past.
We are familiar with Russell's Primary Trend Indicator (PTI). In fact, we know the exact constituents of the indicator. According to Richard Russell, editor of The Dow Theory Letters since 1958( www.dowtheoryletters.com), the PTI is a “technical spectrum of the stock market” that cannot be manipulated. Russell goes on to say "...you can fool one or two of these technical items, but you can’t fool all eight of them, and that’s what the PTI is all about." The goal of the indicator is to provide solid indications of market direction that cannot be manipulated.
As a subscriber to Russell's Dow Theory Letters, you are well aware of the many times that the PTI was right and Russell was wrong about the direction of the stock market. However, we're more concerned with the fact of how much advantage does the PTI provide compared to simply using Dow Theory.
Here is what we’ve found. According to Dow Theory, on July 23, 2009 a new cyclical bull market began. At the time we recommended investing in the highest weighted stocks of either the Industrials or Transports index or the purchase of ETFs for the Industrials (DIA) or Transports (IYT) (article found here).
On the other hand, the Primary Trend Indicator (PTI) gave the first hint that we were in a cyclical bull market on August 25, 2009. In addition, the PTI didn’t give the “all clear”, in terms of being in a bull market, until November 30, 2009 (as seen in chart below). In fact, a good technical analyst would have had tremendous difficulty in getting a clear indication based on the PTI until after the December 8, 2009 rebound.
There is an alternative view on interpreting an earlier signal than the Dow Theory indication using the PTI. However, you would need to apply Dow’s theory in order to properly achieve the earlier signal based on the PTI movement. Using the purple line above, an individual could have interpreted that a cyclical bull market tentatively started as early as May 4, 2009, when the PTI exceeded the January 2009 peak. Subsequent to the May 4th peak, the PTI did not decline below the 89-day moving average on May 27, 2009, suggesting that more upside existed.
However, when we refer back to Russell’s June 3, 2009 issue there is no indication that a tentative new bull market was in play. No mention that May 4, 2009 or May 27, 2009 were possible indications of a new bull market in stocks. In fact, Russell commented that “…ridiculous but unseen green shoots is now repeated everywhere. I’ve stated that a true bear market bottom usually requires many weeks or even months before the crowd turns bullish.” This comment along with the picture of a bear at the top of his newsletter was the only indication that we had that we were still in a bear market, according to Richard Russell.
Because we have studied the PTI in detail, we've determined that it is not worth including in our work. In fact, we’ve found that it is more noise on the market when compared to correct, albeit conservative, interpretation of Dow Theory. If we get Dow Theory right, then we don’t need another indicator to follow that could potentially confuse our primary indications based on Dow’s work. Yes, we will take in as many views as possible, however, we will rely on Dow Theory as the primary indicator for market direction.
Finally, to create an indicator that is supposed to be impervious to manipulation while at the same time practicing Dow Theory is doubling the effort necessary in watching the movements of the market. We’ve outlined in extensive detail the role that manipulation plays in the stock market and how the interpretation of Dow Theory mitigates the most extensive manipulation possible (found here).
Subscriber F.H. Asks:
In regards to our recent posting of the 2012 Portfolio Performance Review F.H. asks, “…I am wondering if the methodology will allow this streak to continue. the process, as I understand it, is to buy stocks at their lows, hold them for a significant gain, and then sell a portion of the position but retain some % of original principal in the investment. won’t the portfolio eventually have such a large percentage of these residual holdings that the incremental effect on returns from the new positions will be overwhelmed?”
Our Response:
In theory, the primary drawback would be that we’ll be working with the same amount of cash over an extended period of time whenever we sell the principal. However, we’re comfortable with continually adding new cash to the portfolio so that we are not faced with the very real potential of our residual holdings dwarfing our capital base.
Our strategy is the literal application of a concept that is outlined in the book Rocking Wall Street by Gary Marks. In an interview on June 2, 2007 with Financial Sense Newshour host Jim Puplava (found here), Marks gives insight as to the reasons why an investor might want to employ the strategy that we’ve outlined with selling the principal and letting the profits run. The interview is so good that we’ve indexed the various topics covered in the interview below.
minutes | topic | |
3:57-4:57 | Art and Craft of Investing | |
6:48-8:25 | Investing is About Less Risk Over Time | |
16.03-17:13 | Emotional Risk causes Gambling Modality | |
17:15-19:28 | Myth of Tax Savings from Buy and Hold | |
19:29-21:39 | Myth of Buy and Hold | |
25:32-28:10 | Risk to Real Estate | |
28:11-31:57 | Cash as a Hedge | |
38:58-42:05 | portfolio construction & life balance |
The discussion of the “Art and Craft of Investing,” as described by Marks, is exactly what we’re practicing and what we believe will give any investor the benefits that are claimed that the stock market can offer. Our approach is in stark contrast to the belief that if you practice Dow Theory you must go all in when the signal is bullish and sell everything when the signal is bearish, but at the same time you’re supposed to compound your way to investment wealth.
We agree with 95% of the strategies described by Marks in the Financial Sense interview. After weighing the merits of various investing approaches, we’ve tried to responsibly provide methods for investing while limiting the risk of excessive loss.
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Posted in Dow Theory, PTI, Richard Russell
Gold Stock Indicator
We rely heavily on our Gold Stock Indicator for signs of when to buy gold stocks. The reason for this is because we found the alternatives, the Gold/XAU and XAU/Gold ratios, to be highly deficient. These two ratios were thought to be the bedrock of indications on when to buy and sell gold stocks. According to well known analyst John Hussman, the Gold/XAU ratio has the following indications:
Nasdaq 100 Watch List: January 25, 2013
Below are the Nasdaq 100 companies that are within 10% of their respective 52-week lows. Stocks that appear on our watch lists are not recommendations to buy. Instead, they are the starting point for doing your research and determining the best company to buy. Ideally, a stock that is purchased from this list is done after a considerable decline in the price and rigorous due diligence.
Gold and Natural Inclinations
The dialog below is an interaction between one of our subscriber.
Nasdaq 100 Watch List: January 18, 2013
Below are the Nasdaq 100 companies that are within 10% of their respective 52-week lows. Stocks that appear on our watch lists are not recommendations to buy. Instead, they are the starting point for doing your research and determining the best company to buy. Ideally, a stock that is purchased from this list is done after a considerable decline in the price and rigorous due diligence.
U.S. Dividend Watch List: January 18, 2013
Below are the 28 companies on our U.S. Dividend Watch List that are within 11% of their respective 52-week lows. Stocks that appear on our watch lists are not recommendations to buy. Instead, they are the starting point for doing your research and determining the best company to buy. Ideally, a stock that is purchased from this list is done after a considerable decline in the price and rigorous due diligence.
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Posted in NLO Dividend Watch List
A Tale of Two Stocks: Dell v. Intel
On November 2, 2012, our valued subscriber S.D. asked us about our thoughts on Dell, being the second stock on our Nasdaq 100 Watch List. We said the following (found here):
Canadian Dividend Watch List: January 15, 2013
This is a list of Canadian dividend stocks that currently, or in the past, had a history of consecutive dividend increases. For those wishing to find the most complete fundamental information on these companies, we recommend visiting one of Canada’s leading financial websites, the Financial Post (found here). However, Yahoo!Finance probably has the better long-term charts and historical dividend data.
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Posted in Canadian Dividend Watch List
2012 Performance Review
Below is a chart of how our investment portfolio performed against the S&P 500 index and the 30-year Treasury based on the January 3, 2012 rate (found here).
Our portfolio exceeded the guaranteed rate (30-yr treasury) by almost double. However, the S&P 500 exceeded our 2012 return by more than double.
Below is the cumulative performance of our investment strategy since 2006 when we codified our investment approach in the last quarter of 2005. We have compared our performance to the indexes indicated, based on $10,000 invested over the subsequent period of time.
Year | Dow Indu. | $ 10,000.00 | S&P 500 | $ 10,000.00 | Nasdaq | $ 10,000.00 | NLO Portfolio | $ 10,000.00 |
2006 | 16.29% | $ 11,629.00 | 15.74% | $ 11,574.00 | 9.52% | $ 10,952.00 | 18.30% | $ 11,830.00 |
2007 | 6.43% | $ 12,376.74 | 5.46% | $ 12,205.94 | 9.81% | $ 12,026.39 | 19.80% | $ 14,172.34 |
2008 | -33.84% | $ 8,188.45 | -37.22% | $ 7,662.89 | -40.54% | $ 7,150.89 | 14.35% | $ 16,206.07 |
2009 | 18.82% | $ 9,729.52 | 27.11% | $ 9,740.30 | 43.89% | $ 10,289.42 | 36.65% | $ 22,145.60 |
2010 | 11.02% | $ 10,801.71 | 14.32% | $ 11,135.11 | 16.91% | $ 12,029.36 | 7.14% | $ 23,726.79 |
2011 | 5.53% | $ 11,399.05 | 0.00% | $ 11,135.11 | -1.80% | $ 11,812.83 | 6.20% | $ 25,197.85 |
2012 | 7.26% | $ 12,226.62 | 16.20% | $ 12,939.00 | 15.91% | $ 13,692.25 | 7.80% | $ 27,163.28 |
Posted in Performance Review