“The Economy ≠ The Stock Market”
Top 5 of the Week of June 13
This week in our Top 5, Matthew Borin from the Enterprising Investor, shares Aswath Damodaran’s—Professor of Finance at the Stern School of Business for NYU—words of wisdom regarding country risk exposure when investing internationally. Crista Huff, Chief Analyst at Cabot, explains how to recognize when your dividends are in danger. And Allan Sloan, a writer for Money, helps us address our emotions when markets rise and fall.
Michael Batnick, the author of The Irrelevant Investor, uncovers the surprisingly weak relationship between GDP growth and stock returns. And finally, following the recent horrendous events in Orlando at the Pulse Nightclub, we here at Become A Better Investor, wanted to show our support to the victims and their families. Just one step could be towards better gun control laws. Our final article, by Taylor Tepper from Money, demonstrates how we can all stand proud and support this move by cutting our investment ties with gun companies as that first step.
How to Expose Yourself Internationally
- Don’t concentrate on attempting to select individual countries; “cheap countries are cheap for a reason,” and leave the past behind you; move on from any previous mistakes
- Find risk exposure to cheap markets at the right price by evaluating stocks in these countries using multiples that are robust against different accounting practices such as revenue multiples
- ‘Hindsight is always twenty-twenty.’ Try not to overreact to your mistakes and accept that some things will always be beyond your control
The Seesaw Equation
- Dividend yield goes up when a stock’s share price goes down; individual investors are concerned this is an indication that the dividend is then “at risk of being cut”
- Do your homework to check if your dividend is at risk; ask yourself these questions
- Is the company making a profit or a loss? Is it in large amounts of debt? Or have they increased their dividend recently; do they see a future in it?
- It is not a weak stock market that threatens dividends; it is poor company finances
Investing: An Emotional Rollercoaster
- Investors are desperate to know whether to buy more stocks in market highs before the prices crash, or whether they should sell everything during markets lows like the start of this year
- Don’t obsess over your stock portfolio; calm yourself from stressing out over stock prices
- If your emotions are running high then part with a few of your holdings and put the returns in a money market mutual fund or certificates of deposit
- The best place for your money to mimic the overall market long-term is in “high-quality, low-cost, broadly based index funds”
Obsessed with stock prices or a cool collected investor? Share your experiences in the comments section below
“The Economy ≠ The Stock Market”
- Take heart that GDP has little correlation with stock market returns—only 10% of GDP is made up by what pushes stocks; earnings
- Stocks fluctuate much more than GDP—compare their standard deviations for empirical evidence; 3.5% for the US GDP and 17.2% for the S&P 500
- Given that stocks can decline further than the GDP changes, it’s safe to say it can rise further too
Pride Against Gun Stocks
- While it can be complex to move away from gun companies indirectly, the website GoodbyeGunStocks.com lets you enter your mutual or exchange-traded fund information and uncover what exposure you have to gun stocks
- Or get involved in the Socially Responsible Investing approach; invest in an ESG fund, which considers the environmental, social and governance impact of the companies involved
- While these moves by themselves won’t solve gun-reform, it is at least a step in the right direction
Top 5 of the Week is a summarized collection of financial investment articles that we like and think you might like too. Having written thousands of pages of equity strategy and company research between us, we understand the allure of the ever-changing world of finance. Investing is an art form – and like everything, something you can work on and improve at. There are some excellent writers out there on the finance web, some offer a running commentary on today’s market, some are doing research, some have tips on how to Become a Better Investor, and some just lift the cloud of fog behind a lot of financial jargon. Each week we will keep you up to date with the top 5 articles worthy of your attention.
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DISCLAIMER: This content is for information purposes only. It is not intended to be investment advice. Readers should not consider statements made by the author(s) as formal recommendations and should consult their financial advisor before making any investment decisions. While the information provided is believed to be accurate, it may include errors or inaccuracies. The author(s) cannot be held liable for any actions taken as a result of reading this article. The Babinow Team doesn’t necessarily endorse any stocks or shares mentioned in the articles or the author of such articles linked to and summarized in Top 5 of the Week and cannot guarantee the accuracy of its information.