October 1, 2013
Investment Newsletter for the end of September, 2013
What is the market? The question is important because it what you measure against.
The most widely published number is the “Dow.” The Dow Jones Industrial Average is 30 big stocks. Everybody looks at it every day (me included) and says to themselves, “the market is up today” or “down today.” It is not a very good measure. It is only 30 big stocks. Very little of them are in the mutual funds I invest you in. It is, however, a quick way to look. The Dow is on every newspaper and internet front page.
The Dow was up this quarter 220 points, about 1.5%. It also made money in September, bad news and all. The market is continuing its upswing.
A broader and more accurate index would be the S&P 500. It is comprised of 500 big stocks. It is also easily available on every newspaper or internet front page. With 500 big stocks, it gives a more decent picture of the market than the Dow. I do not emphasize these big cap stocks in your portfolios but you are exposed. The S&P 500 index went up 4.7% this quarter. It also went up in September.
An even better definition would include all the US stocks. The big and the small. The Wilshire 5000 Total Market Index is close. It is a pretty good picture of the US market. It does not include international stocks. Unfortunately, it takes some work to find. It is not on the front page of anything. This index went up 5.8% this quarter. It also went up in September.
The Dow up 1.5%. The S&P 500 up 4.7%. The Wilshire 5000 up 5.8%. Very different numbers. Which is the market?
I focus on the small cap value segment of the market. You are exposed to the whole market but I put extra weighting on small cap value. This segment will overtime outperform the market. The best index for this segment is the Russell 2000 index. Use the symbol RUT in any internet browser. This index went up 9.85% this quarter. It also went up in September.
My message is to be very careful when reading/hearing that the Dow hit a new high, dropped 200 points, reacted to some news, or whatever. It is not the whole stock market (US and international). It is not even the whole US portion of the market. It also has very little to do with your portfolio.
It has been a very good quarter for almost all portfolios I manage. Profits are continuing nicely. I cannot predict next quarter, of course. I have rebalanced this quarter, twice in many cases. I have sold stock funds and bought bond funds, not because I am predicting a downturn. I am honoring the risk level agreed to with you.
Thank-you for your trust in me and your business. Call me with any issues.
