Changing Investment Sentiment and Risk of Owning Individual Stocks

What a week, the dog days of summer are here and the action on Wall Street is hot. This newsletter gives a weekly recap from Vanguard, changing investment sentiment, risk of owning individual stocks, and some trivia for your enoyment. You and your investments need to stay cool for the rest of the summer.

Vanguard Weely Recap

The Commerce Department's report on gross domestic product (GDP) for the second quarter confirmed what many had expected: Although the economy has grown for the fourth straight quarter, the rate of growth has slowed. Moreover, the nation's recovery from recession has been tougher than previously thought, based on revised GDP figures indicating that the economy from 2007 to 2009 was weaker than originally estimated. For the week, the S&P 500 Index fell 0.1% to 1,102 (for a year-to-date total return—including price change plus dividends—of about -0.1%). The yield of the 10-year U.S. Treasury note fell 8 basis points to 2.94% (for a year-to-date decrease of 91 basis points).

Changing Investment Sentiment

As you read in the Vanguard Weekly Recap, this week on Friday, it was stated that the economy did not grow as fast as anticipated in the second quarter. The result was a drop in long term interest rates and the stock market yawned. This is the first time this summer that news like this did not send the VIX skyward and the stock market tumbling.

We have a change in investment sentiment and this is positive for the stock market. How did this happen? Thursday night on Bloomberg TV the Finance Minister for France was interviewed and gave a very upbeat report about the future. The statements were that a double dip recession would not occur, during 2011 the global economy would grow by 4%, and employment would grow worldwide. France is working simultaneously to control debt and grow their economy, something badly needed in the USA. I admit that I live a boring life by watching Bloomberg TV.

Risk of Owning Individual Stocks

This week CommScope reported second quarter financial results with revenue and earnings exceeding expectations. The stock was punished for the next 2 days dropping about 25%. Normally, one would think that good news would be rewarded. So what happened? The revenue for the next quarter was forecasted slightly below expectations and some large investors gave a vote of no confidence and ran for the exits. CommScope had top ratings by several investment guidance services such as the Motley Fool.

This points out a few important points about owning individual stocks:

* It is common for stocks to have much larger up and down swings from the rest of the market. We enjoy the large upswings.
* Results for the previous quarter do not matter, investing is about what will happen in the future. You can not invest by looking backward.
* Investment guidance experts do lots of research and select good companies based upon metrics and they can not predict the future just like trying to predict the weather.

Trivia

"Dog Days" (Latin: diēs caniculārēs) are the hottest, most sultry days of summer. In the northern hemisphere, they usually fall between early July and early September. In the southern hemisphere they are usually between January and early March. The actual dates vary greatly from region to region, depending on latitude and climate. Dog Days can also define a time period or event that is very hot or stagnant, or marked by dull lack of progress. The name comes from the ancient belief that Sirius, also called the Dog Star, was somehow responsible for the hot weather.