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 Just a Do-Over -- Despite all the market drama last year, the S&P 500 finished the year within 0.04 of a point of where it started. It's as if 2011 didn't really matter. But it did for investors with limited portfolios of individual stocks. Five of our six models managed to best their benchmarks although returns, like those of the broad market, were fairly muted.
Lessons from Portfolio 2 -- It's every investor's dream to buy the next Microsoft when it first goes public and hold on until it becomes one of the top companies in the S&P 500. Rags to riches makes a great story, but that's not really how long-term investors make money in small caps. Our small cap Portfolio 2 is a prime example.
The Election Year Economy -- There are few things in life that can be known with complete certainty. One is that if you consistently spend more than you have, your financial status will consistently deteriorate. A second certainty is that stocks, bonds, and virtually all investments will perform better in an environment of financial stability and economic growth. Can investors count on politicians to come up with a way to do that when they're on the campaign trail?
The Search for Forward-Looking Factors -- Quantitative investors are often faulted for focusing on the past when making decisions for the future. Instead, many investors seek "forward looking" measures rather than those derived from the past. Initially that makes sense because if certain factors lead to future success, they should work regardless of what happened in the past. Unfortunately, what often sounds reasonable in theory isn't possible to apply in practice.
 Don't be scared by the name. Sure it sounds like something you tried to avoid in high school, but there really is something to it. Here -- in plain English -- is how you can make math work for you in portfolio construction.
Why rely on value, or growth, or any particular style for that matter? There are good reasons to consider each of these approaches -- and they're not as different as you might think.
Any monkey -- or even mutual fund manager -- can pick a bunch of stocks, but can they really build a portfolio? Here's how you can.  If you're a regular visitor, you might want to know what changed since the last time you were here. Look no further.
Unlike some of those newsletters you pay for that always tell you how wonderfully some of their selections did, we show you the whole shooting match.
The old page museum where you'll find previous commentary ("Stating the Obvious"), economic forecasts ("True Facts"), and evolution of our quant models ("Work in Progress"). Nothing's changed although dead links have been removed.  For the Week Ending January 27, 2012 The State of the Union address, the Fed's Open Market Committee meeting, and a raft of earnings all should have been able to move the market last week. Instead, combined they had less impact than the latest worries from Europe. That's not to say domestic events didn't move the needle at all, just that they had considerably less impact that one would have expected. The State of the Union was a basic non-event. With most of the text leaked well before the actual presentation, virtually everyone knew it would contain no specific solutions, just more the same class warfare. No one was surprised when it did and the market didn't care. Stocks did initially bounce when the Federal Reserve announced plans to keep interest rates at "exceptionally low levels" for period to last "at least through late 2014." Low interest rates and high liquidity are typically seen as fuel for businesses and their stocks. But the Wednesday afternoon rally had no legs once investors reflected on the actual meaning of the Fed's announcement: The nation's central bankers believe the economy is so mired in the slowdown that it will take "exceptional" action to get it back in gear, and that's not expected to really take place for two more years! There's almost no way to spin that in a positive way for stocks. Shares were mixed Thursday and Friday.
Last week's earnings were mixed, too. The highlight was Apple which easily blew by estimates with a 73% increase in quarterly revenue. The already overpriced shares jumped 8% in pre-market trading and held onto most of that gain at the close of trading. Other reporting companies were lackluster at best. Interestingly, new worries -- almost everyday -- from Europe dominated headlines and were always at the back of investors' minds. Some speculated that's why equities' three-week rally took a breather too. If you're like most domestic investors, you're probably tired of hearing about the latest crisis in Greece, Portugal, Germany, and/or France. After months of this, it's tempting just to tune it out, but do so at your own risk. If nothing else, the Eurozone's credit crisis has had a lasting -- and somewhat favorable -- impact on the dollar. The euro has finally started to react relative to the dollar. This wasn't the case in the early stages of the crisis but over the past three months, that's changed. As you'll notice from the chart above, the dollar is now strengthening versus the euro (red line, right scale). But more importantly, U.S. stocks are following the dollar up (green line, left scale). The dollar/euro exchange rate and the S&P 500 are usually slightly negatively correlated, but over the past three months their correlation has risen to .4354. (Correlation, as you probably know, measures how closely two series move together with 1.0 representing lockstep movement, -1.0 a mirror image, and 0.0 no relationship at all.) In essence, as the Eurozone's crisis deepened, the dollar has risen and has taken stocks along with it. A stronger dollar keeps the lid on commodity prices which helps consumers at the gas pump and grocery store. It also quells inflation fears enabling individuals and businesses to confidently invest for the long-term. A sturdy currency is also the linchpin of a strong economy which can attract foreign investment. Just as investors have fled to U.S. Treasury securities for their relative safety, they're also seeking out domestic stocks. This is actually a favorable outcome from a less than favorable situation abroad. Arguably, it's a short-term phenomenon that will persist only as long as the Continent's credit crisis does, nevertheless the dollar/euro exchange rate is a trend worth watching from an investing standpoint. If nothing else, it's already been a much better indicator than political rhetoric, zero-interest rates, or i-earnings.
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