Review 5 Reasons Why You Shouldn’t Trade Here!

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Mark Hulbert

Splits signal that management is bullish on their stock

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Would you be interested in a stock picking strategy that has beaten the stock market by 3.1 annualized percentage points over the last two decades?

Then why did an exchange-traded fund benchmarked to a stock-split strategy close down last year? My hunch is that investors weren’t really all that interested. At the latter stages of a bull market, investors pay little more than lip service to slow and steady strategies with strong long-term records. As greed takes over, people become irrationally exuberant. As a result beating the market by “just” three annualized percentage points just isn’t that exciting.

That’s a shame, not just for the strategy in question but for what it says about human nature. It’s because of this behavioral characteristic, after all, that bear markets become necessary and even desirable: They teach investors to have a healthy respect for risk, without which the economy becomes inefficient and reckless.

The strategy I am referring to was devised by Neil Macneale, editor of an advisory service called the 2-for-1 Stock Split Newsletter. His approach couldn’t be simpler: Each month he picks a stock that has recently split its shares, and it stays in his model portfolio for exactly 30 months. The exchange-traded fund created to follow the strategy, which ceased trading last fall, was the Stock Split Index Fund .

The New York Stock Exchange maintains an index of the 30 stocks that are held in Macneale’s model portfolio at any given time. Since July 1996, which is how far back the NYSE’s calculations go, the index has beaten the Wilshire 5000 index W5000, -1.83% by an annualized margin of 12.1% to 9.0% (including dividends).

This market-beating performance shouldn’t come as a surprise, since a number of academic studies have reached a similar result. One of the first such studies was authored by David Ikenberry, a finance professor at the University of Colorado. Ikenberry believes the market-beating performance of stocks that have split their shares traces to a “sweet spot” in which the typical company likes to have its stock trade.

Though that sweet spot is not precisely defined, companies will not split their shares, even if the prices of those shares have risen sharply, if management believes there is a significant probability that shares of their company will fall back by themselves.

In effect, therefore, stock splits are a signal from management that they have confidence in the continued appreciation of their companies’ shares.

One test of this hypothesis is the performance of stocks that undergo a reverse split, in which the number of outstanding shares is reduced in order to increase the stock price. The signal being sent in such cases is just the reverse of what it is in the case of a regular (or forward) split, and — sure enough, according to researchers — such stocks proceed to lag the market after announcing their reverse splits.

Given the academic foundation of this so-called stock split effect, it’s perhaps not a surprise that some companies may now be trying to game the system by splitting their shares just to temporarily boost their stock prices. Macneale tries to guard against this by choosing the stock-split candidate each month that he believes is most undervalued. His most recent pick is Brown & Brown BRO, -4.15% , the diversified insurance agency, whose shares split two-for-one in March. Brown & Brown was more attractively valued than two other stocks that also had split their shares: Fiserv FISV, -2.88% and Herbalife HLF, +3.67% .

There’s a broader investment lesson here too: Don’t shun decent long-term strategies, especially when the rest of the investment public is carried away with get-rich-quick schemes.

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For more information, including descriptions of the Hulbert Sentiment Indices, go to The Hulbert Financial Digest or email [email protected].

Canadian Prime Minister Trudeau joined by Newfoundland’s premier in decrying Trump ban on exports of N95 protective masks

Trump has said he will block exports of the masks from the United States to ensure they are available for domestic use during the coronavirus pandemic.

8 Reasons Why You Should Not Trade

Every physician investor has at one time or another considered trying their hand at trading. Maybe their friends work on Wall Street, or they watch CNBC’s Fast Money, or they were inspired by Dr. Michael Burry on the Big Short. And of course, its hard to go to a cocktail party and not hear about someone making a hugely profitable trade. But take it from a former Wall Street trader that doctors shouldn’t trade. Here’s why:

1. No Trading Edge Compared to Professionals

There is big money being thrown around on Wall Street, which means there are some very smart people working on Wall Street trying to make money. Doctors are smart, but we can’t compete against these equally highly educated hedge fund managers who have an army of research analysts giving them an edge in fundamental analysis, the fastest computers to give them a technical edge in trade execution, and the years of experience of living and breathing the markets 24/7.

2. Differential Between Short and Long-Term Trading Tax Implications

The IRS encourages long-term investing and discourages short-term trading by taxing short-term and long-term capital gains at different rates. Short-term trading profits are taxed as ordinary income, which for physicians can be as high as 39.6%. Long-term capital gains (defined as investments held for longer than 1 year) are taxed at a lower rate (15-20%). This 20% difference in tax rates makes it even harder for traders to beat long-term investors. If you make 8% in your index fund portfolio, you would need to make at least 10% in your trading portfolio to make the same after-tax return if you are in the highest tax bracket.

This disadvantage can be mitigated by trading in your retirement account, but it is counterintuitive to be trying to make short-term money for an account that you can’t withdraw from without penalty until retirement age, which could be 20-30 years in the future.

3. Chance of taking way too much risk

Traders must be disciplined, and be meticulous in their risk management skills. Trading websites often cite risk management as the most important skill of trading. Poor risk management, they say, can ruin even profitable traders. Doctors trying their hand out in trading may not fully appreciate the importance of risk management, and just throw 5%, 10%, or even 20% of their portfolio on a single stock.

In addition, there is always a risk that short-term “trading” eventually just becomes gambling, with the goal simply of getting the rush of a winning trade. As such, there is a danger, especially for a losing trader, that larger and larger portions of a portfolio are allocated to trading in order to make back money lost or to have some winning trades. It is better just to never start.

4. Bid-Ask Spread and Trading Commissions

It costs money to play in the stock market . Brokerage houses make money by charging a commission for each trade you make. For stocks, Fidelity charges $7.95 per trade, and Vanguard charges up to $7.95 per trade, depending on the size of your portfolio. A short-term trader who trades just once per day (250 trades a year) would pay Fidelity approximately $2,000 in commissions yearly. For a physician allocating $100,000 to their trading account, this is already 2% of their portfolio.

This doesn’t even include the bid-ask spread, which is how investment banks and market makers (or mostly their computers) make money off of traders. Market makers will offer retail traders a price they are willing to buy a stock at (the bid) and a price they are willing to sell a stock at (the ask). For example, they might be willing to buy a stock for $10.00 and sell it for $10.05. The difference between the bid price and the ask price is the bid-ask spread (in this case $0.05) and is the profit the market makers earn to create a liquid market. Bid-ask spreads are smaller for more popular, higher-volume stocks, and lower for less popular, lower-volume stocks. A typically bid-ask spread for a high-volume stock might be $0.01 for a $100.00 stock, or 0.01%. Again, if you trade in and out of this stock 50 times (100 trades), losses from the bid-ask spread alone approaches 0.5%, which would be unacceptably high if this were a management fee.

By investing in index mutual funds, there is no trading commission and no big-ask spread. If you prefer ETFs over mutual funds, many index ETFs are commission-free with Fidelity and Vanguard, and the trading volume of these ETFs make the bid-ask spread minuscule. Also, you are trading much less often.

5. Time Commitment Required to Succeed

It takes time to trade well. Remember, you are competing against professionals who have been studying the markets full-time for years, with research analysts to back them up. It’s unlikely that you would be able to beat the market in your spare time. You aren’t going to beat the market during your lunch break, or even by doing 1 hour of homework per stock a week, as Jim Cramer recommends . Dr. Michael Burry from the Big Short attributes his success to poring over financial statements during quiet hours on call. Eventually it became an obsession for him, and he no longer works as a neurologist in order to focus on his hedge fund. Success in trading requires a commitment far beyond what a full-time physician can give.

6. Rarely Beat the Market

Many traders make money in the short-run. Probability states as much. If you flip a coin, with half of investors betting on heads, and half betting on tails, 50% of investors will be making money. These 50% will brag to their friends about their winning trade, or post on message boards touting their investment returns. This is dangerous, because it can lure traders into thinking that they are beating the market, when in actuality, luck has been on their side . In the long-run, very few traders will be able to consistently make money, especially taking into account the structural disadvantages of the bid-ask spread, trading commissions, and unfavorable tax treatment of short-term capital gains.

7. Take Uncompensated Risk

Trading by definition will lead you to hold an undiversified portfolio. This means that you will be taking outsize risk for the same expected gains. Diversification is one of the only free lunches in investing , and by trading you are not taking that free benefit. The expected return of the average individual stock does not exceed the market (otherwise everyone would pile into the highest return stocks), but the standard deviation of returns of an individual stock far exceeds that of the market.

8. Stress of Losing Money

Trading is stressful. Even if you make money, it is stressful. The daily gyrations of the market cannot be controlled, and if your money is at risk, it is stressful. I would argue that trading can be more stressful than most physician jobs (exceptions would probably be emergency medicine or surgery). Being a doctor is stressful enough; there is no reason to allow investing to add any more stress to our lives.

Hopefully, I’ve been able to convince you that trading is a losing proposition. Have you ever traded stocks and had success? Do you have any additional reasons why you shouldn’t trade? Comment below! Review: 5 Reasons Why You Shouldn’t Trade Here!

The Mercedes-Benz EQC is the German brand’s first full-electric SUV – and is on sale now

However, as a class, large SUVs have the worst overall tested fuel economy of all types of vehicle except sports cars, so the experts say.

In Which? tests, which are more stringent than the official tests, they’re almost a third (30 per cent) less efficient on average than the traditional large car class, which also includes powerful luxury models.

This equates to average annual fuel savings of more than £200, based on a driver covering 9,700 miles a year.

‘Choosing a slightly more sensibly proportioned mid-size SUV won’t help reduce costs either,’ a Which? spokesman added.

‘On average, these too are less efficient than large cars – by over 10 per cent on average.’

Even when you reach the very smallest, least powerful and most efficient class of compact crossovers, they still come off worse.

In Which? tests, compact SUVs returned around 7 per cent worse fuel economy than small hatchbacks (a class including the likes of the Ford Fiesta, Vauxhall Corsa and Renault Clio).

They’re also marginally less efficient than the medium hatchback class, of which models (such as the VW Golf) are likely to offer far great passenger space and practicality.

2. SUVs don’t handle as well as hatchbacks

A jacked-up ride means a higher centre of gravity and, combined with softer suspensions means SUV handing at higher speeds isn’t on a par with a traditional hatchback.

Which? says its hazard avoidance test is a good example of this in action.

The consumer group conducts a repeated test at a specific speed (56mph) to see how well all new models cope when they’re required to change direction quickly.

Which? expert testers then continue to perform the assessment at increasing speeds to find the limit at which a car can cope with the violent manoeuvre.

A higher centre of gravity and softer suspension means SUVs tend not to cope with sudden changes of direction at speed as well as a more grounded hatchback, saloon or estate car

‘Time and again, high-rise SUVs throw in the towel before lower, lighter hatchbacks and estates,’ a spokesman told us.

‘Given the choice, the Which? cars team will always choose to drive a mainstream hatchback over a comparable SUV. This is because, as a general rule, they’re more responsive and fun to drive.’

3. Some SUVs are too big for width restrictions

It’s not just an SUV’s carbon footprint you’ll need to worry about, but also its physical size on the road.

The main problem is width, which can really affect how easy an SUV is to drive around town.

Not including door mirrors, the average width of the large 4x4s Which? has tested is 1,925 millimetres. That’s almost three-quarters the width of a London Routemaster bus.

As a result, some are simply too big for the UK’s road network.

‘We found that the Tesla Model X, along with eight other cars tested, cannot be driven through a 6ft 6in width restrictor at all – seriously limiting its usefulness in the urban driving scenario its emissions-free motor is meant to improve’, Which? said.

The full list of width-restriction limited SUVs is below.

Additional research by Which? in 2020 also found that many modern SUVs are too long to fit into an average UK parking space.

The standard parking bay is 16 feet long (4.8 metres) by 8 feet wide (2.4 metres).

A review of vehicle dimensions found that some (listed below) were around half a metre longer than this measurement.

SUVs found to be too long for a standard parking bay

Nissan Navara (2005-2020) – 52.2cm too long

Mercedes-Benz GL-Class (2020) – 30cm too long

Mercedes-Benz GL-Class (2006-2020) – 29.6cm too long

Audi Q7, Q7 e-tron and SQ7 (2020-present) – 25.2cm too long

Land Rover Range Rover (2020-present) – 19.9cm too long

The Mercedes GL-Class is up to 30cm too long to fit into a standard UK parking space, figure show

4. SUVs emit more CO2

With engine downsizing, ditching four-wheel-drive and the increased prevalence of hybrid models, carmakers are working hard to reduce the emissions of their off-road models.

However, the Which? independent tests reveal that, on average, SUVs emit much more CO2 than conventional models.

The Which? lab measured tail-pipe emissions tests tank-to-wheel CO2 outputs.

This is the carbon footprint inclusive of the emissions released into the atmosphere from the production, processing and delivery of a fuel. These are more stringent than the official emissions tests and show just how big the difference is in the table below:

5. SUVs tend to be among the least reliable cars

If you forked out over £64,425 on a new car, you’d expect it to be pretty reliable, right?

However, the Which? Car Reliability poll found that Land Rover’s ultra-posh Range Rover Sport SUV is the least dependable new model on the market.

According to the survey, it scored an ‘appalling’ one star out of five for dependability for vehicles less than three years old, positioning it at the bottom of the reliability standings for a second year running.

The consumer group said a worrying 42 per cent of owners of the hugely popular ‘Chelsea Tractors’ had to visit the garage at least once because of problems with their Range Rover Sport in the 12 months before the survey.

And it wasn’t just a single issue that had riddled the expensive SUV. Which? claimed there was an ‘exhaustive list of problems’, covering everything from the built-in sat nav, connectivity to the infotainment system, dashboard displays going haywire and the on-board computer software having glitches.

The Range Rover Sport might have a rugged image, but last year’s Which? Car Survey found it was the least reliable new vehicle on the market

The smaller Land Rover Discovery Sport – which costs from £31,575 – was named the second least dependable motor last year.

More than half of the owners who completed Which?’s survey said their car had suffered at least one fault in the last 12 months. These problems weren’t minor niggles either.

And it isn’t a problem solely for Land Rover vehicles.

Nissan’s UK-built Qashqai, which has been the best-selling SUV among Britons for over a decade, has the highest breakdown rate of all cars, according to the survey.

One in five (20 per cent) owners of Nissan’s current – and immensely popular – family SUV told Which? that they needed to replace their vehicle’s battery in the last year, which is up to five times the average rate for other cars of the same age.

Which? calculated that if a similar level of battery problem was affecting all 300,000 of the UK’s Qashqai (2020-current) owners, an estimated 60,000 might need to replace their battery.

You can tell Which? about the dependability of your car over the last year by filling in the 2020 Reliability Survey – and automatically have a chance of winning £2,500.

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