In what has been a fairly quiet week for the markets, we came across an interesting note regarding equity outflows from Thomson Reuters’ Lipper service, and continue to wonder how the accumulation/distribution picture will hold up. Money continues to pour into taxable bond funds and other yield-centric areas, which coming out of equity funds (mostly from the S&P 500). Volume levels were once again very low and we would prefer seeing rising volume on the up days.
Headlining today’s lagging action, shares of W.W. Grainger (GWW) finished lower following the company’s monthly sales update. DeVry (DV) was also lower following their earnings results. Shares of Transports giant FedEx (FDX) was lower following a Wall Street analyst downgrade. On the flipside, Broadcom (BRCM) shares ended in the green on positive analyst comments.
With large cap stocks and big-name brands attracting a big chunk of recent investment dollars, investors cannot become complacent when it comes to their own portfolios. The idea of owning the biggest and perceptibly the best is fine. Just don’t ever adopt the “if they go down, then I go down with the best” mentality.
This approach has gotten investors in a lot of trouble in the past, and will continue to do so for decades to come. We can go down the line of monster stocks through the decades that inevitably lost their way and became huge losses for those who denied the best days for these companies had already passed. Just in the last decade or so, we saw the rise and fall of companies like Lucent Technologies, Nortel Networks, and many others that still trade now, like General Motors (filed bankruptcy and was resurrected to trade again), Nokia (NOK) (was once a highly-admired tech company, but now trades under $3/share), Sony (SNE) (another once-great innovation giant), as well as Dell Inc (DELL), Cisco Systems (CSCO), JDS Uniphase (JDSU), and so on. Many life savings have been lost or remain lost (in the stocks still trading today but way off the all-time highs).
Companies rarely, if ever, are able to dominate markets for too long periods of time. Executives get rich, lose their ambition, and eventually decide to move on, either to retire or possibly take a crack at building their own company. We see it everyday with companies like Google (GOOG), Facebook (FB), and even Apple (AAPL). Eventually, talent decides to leave or is lured elsewhere. The title of CEO still intrigues many a corporate player, and sometimes that means hanging your hat elsewhere.
Point being, investing involves constant change and flexibility. Those who are not aware of these trends and mistakenly believe good times last forever for companies/stocks will not be doing their investment portfolios justice. A top for any company is inevitable, and it is why we must always stay vigilant for signs a once-strong company may have lost its way.Our Beat The Markets with Dividend Stocks eBook Has Arrived!
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Looking ahead to next week, third quarter earnings will continue, as we are expecting results from Home Depot (HD), Wal-Mart Stores (WMT), Cisco Systems (CSCO), and J.M. Smucker Co. (SJM), just to name a few. The focus will likely be on the economic data as well as the latest Wall Street analyst calls.