How Could Rising Rates Affect Small-Cap Stocks?

As we continue to wait for the Fed to move on rates, questions loom as to how a rising rate environment will affect the markets. In a recent article for Proactive Advisor magazine, Validea CEO John Reese shared his thoughts on how this could specifically impact small-cap stocks. Conventional wisdom, he explains, says that rising rates can negatively affect small-cap performance (companies with market capitalizations of between $250 million and $2 billion) since: It leads to increased costs of the capital necessary for growth. Small-caps tend to be more dependent on future revenue streams, and higher rates generally lead to […]

Jason Zweig on Why Interest Rates Matter

When shopping for sale items, it’s customary to look at the price tag and see how much an item has been “marked-down”. You’d rather browse the “30% off” rack than the racks with lower discounts. Why? Because it affects the item’s value. On a much more sophisticated level, stock values and interest rates have a similar relationship. In a recent Wall Street Journal article, Jason Zweig describes how interest rates are an important factor when determining the intrinsic value of investments (the current value of the cash they are likely to generate in the future). Here’s how it works: If […]

To Bolster Returns Large Investors Will Have to Come Up the Risk Curve

Gone are the days when a conservative bond portfolio will provide a decent return. Low interest rates and a sluggish economy are forcing investors to accept higher risk to get the same returns they would have twenty years ago (by buying and holding investment-grade bonds). The Wall Street Journal recently reported that research conducted by Callan Associates, Inc. (which advises large investors)  shows that in order to make a 7.5% return today, a portfolio’s bond component would have to shrink to roughly 12% and private equity and stocks would have to account for nearly three-quarters of the investment pool. Jay […]

The Only Fed Voice that Matters – Listen to Yellen

James Grant of Grant’s Interest Rate Observer recently weighed in on Federal Monetary Policy in a Bloomberg Report video. Grant believes the Fed “conceives its principal work to be suppressing or distorting the free play of interest rates or prices.” Asked what the Fed should do or not do to make the prices rule, Grant said the Fed has missed its mark, explaining that it had six or seven years to orchestrate a return to normal interest rates but are now confronted with moving to restore a normal structure of interest rates. Grant opined: “what the Fed ought to do […]

The Importance of Dividends for the Long Term Investor

Dividend producing stocks are attractive and offer investors compelling values (subscription required) according to this AAII Journal article by John Buckingham, director of research and chief portfolio manager of AFAM Capital and editor of the Prudent Speculator newsletter. Keep in mind, the article was written in mid-2015, but many of the statistics in the article are long term in nature and we believe investors seeking and investing in high dividend paying stocks should take note of this research. There are a number of factors that make Buckingham positive on dividend oriented stocks. First off, Buckingham notes that non-dividend payers have […]