AssetPreserver News

If you have ever watched level II quotes, you will see bids for $0.01 or ask $100,000 for a stock. These are stub quotes.

According to Investopedia: stub quote is an order placed well off a stock’s market price. Stub quotes are used by trading firms when the firm doesn’t want to trade at certain prices and wants to pull away to ensure no trades occur. In order to make this happen, the firm will offer quotes that are out of bounds. A stub quote also serves as a safety net in that if a market maker doesn’t have enough liquidity available to trade a stock near its recent price range, then a stub quote is entered so that the market maker complies with its requirements without extending its quotes beyond its available liquidity.

The SEC found that stub quotes represented a significant proportion of the trades that executed at “extreme prices” on May 6, the day of the Flash Crash. When market makers briefly stopped trading, the only quotes left were stub quotes (which were executed) causing the S&P 500 to drop 6% in a matter of minutes.

New rules that took effect this Monday (Dec 6, 2010) tighten the band to within 20% to 30% of the national best bid and offer. The 20% trigger occurs near the open and close (before 9:45 or after 3:35) and 30% for other times during market hours. The range can tighten to 8% for stocks participating in the new circuit breaker program.

Hopefully, this will add some order to the market.

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Do you have an exit strategy for each of your investments?

Knowing when to get out of an investment is much more important than knowing when to get in.

Here is an article discussing why having an exit strategy is pertinent to your portfolio.

The Securities and Exchange Commission (SEC) voted to revamp the 12b-1 fees charged by mutual funds.
Originally, the 12b-1 fee, adopted in 1980, was to cover the cost of sales and distribution costs of mutual funds. In 1980 the total cost of 12b-1 fees was a few million; today (2009) it brought mutual funds 9.5 billion dollars. About two-thirds of mutual funds charge these fees.
Mutual funds have been increasing 12b-1 fees but at the same time touting they have no one-time sales load. Unfortunately, 12b-1 fees are charged year after year and eat into returns. They can be as high as 0.75% of a fund’s assets per year.
The new proposal is capping the fees at 0.25%. Funds will have to report how much goes to brokers as ongoing sales charges and separately list costs for marketing and other services.

Vanguard has joined the no fee zone. Their lineup of 46 ETFs are available for no commission trading. Also, their commissions on equity trades have been lowered; the amount depending on your total assets with them.

I am a big proponent of Vanguard because of its philosophy of low costs for financial products.

Visit Vanguard for the details.

One of the big costs of trend following and ETF investing at regular intervals is commissions. That may be going away.

Fidelity has offered commission-free trading on certain iShares ETFs. This is great because now you can invest in ETFs at regular intervals like mutual funds but without incurring commissions. Since ETFs generally have lower expense ratios this is a big plus for investors. Schwab has a similar offering for eight Schwab ETFs.

Want your own asset allocation? Instead of a 60% stock/ 40% bond balanced mutual fund at 0.60% expense ratio, do 60% IVV (S&P 500), 40% AGG (U.S. bonds) at a combined 0.15% expense ratio, a savings of 0.45% per year.

Finally, something good for investors.

An update on wind power and solar power generation.

The total of new wind generation for 2009 came to 9,922 megawatts, enough to power 2.4 million homes according to the American Wind Energy Association (AWEA). I recently was near Palm Springs, CA – what a site. There were hundreds of wind turbines everywhere. Also, near Lincoln, Illinois there is a big wind farm, too, though most of them were not turning. 2008 new wind generation was 8.4 megawatts.

The total solar energy generation in the U.S. was nearly 400 megawatts. Helping was in October, 2009, Congress extended a 30 percent investment tax credit for solar installations for eight years. The legislation gets rid of a $2,000 cap for residential installations and allows the utilities to take advantage of the tax credit.

We’ll see how 2010 does.

2009. What a year.

TLT, which lead the pack last year, was dead last this year. It is almost as if last year’s return chart was turned upside down.

Returns are before taxes.

Distributions are reinvested.

7 day or 30 day SEC yield is used when possible.

BSR Alerian MLP index was delisted. AMZX substituted.

U.S. home prices from 1988 to Oct 2009.

What does this mean to me?

In many areas of the country, housing prices are stabilizing or increasing. Individually, San Francisco and Phoenix led the rise while Las Vegas and Detroit dropped.

More than 2,000 funds were liquidated or merged out of existence in 2009, the biggest downsizing of the fund industry in years. The polyglot of funds were mostly failures but some, although good, just didn’t gather a following. Many of the funds were target funds which are supposed to last until you retire.

Merging and liquidating funds is a way to make poor performers disappear so only the good ones survive. This makes the mutual fund company look better since their average return increases. This act is called survivorship bias.

For example, let’s say that there are three funds (A, B and C) in a given category. Fund A has a five-year annualized total return of 12%; Funds B and C have five-year annualized total returns of 8% and 4%, respectively. The average annual total return for the fund category would be 8%. But, if the loser, Fund C, were to be liquidated or merged into either Funds A or B, it would disappear and make the five-year average annual total return for the fund category 10%.

Regardless of the reason, survival of the fittest still remains the modus operandi.