AAII Investor Update: Stocks Are Pricey, But Inexpensive [View article]
Table 2 has been updated. I incorrectly sorted the stocks when the article was first published, from high to low P/Es, when it should have been from low to high P/Es. Sorry for the confusion.
As far as the comments, anchoring is a very common error among investors of all skill levels--and it is very important to be aware of it.
Just look at all of the current chatter about Facebook. Yes, the stock is now $6 below its offering price, but it is still very expensive on a valuation basis. But, how much do you hear about the stock's P/E ratio?
So is the article simple, yes? But, it's underlying point is very important.
AAII Asset Allocation Survey: 11-Month High for Stock Allocations [View article]
Hi,
Thanks for being a member.
It is a small percentage of total membership and we do not use random sampling for the surveys, so there are those caveats that must be considered when looking at the survey results. Nonetheless, there is a long history (which can be downloaded at AAII.com) to compare the current results against.
As far as the ICI mutual fund flow data, they measure the fund flows for 95% of all mutual funds. Thus, the data includes both individual and institutional inflows and outflows.
Our surveys provide insight, but I do not recommend using them as the sole indicator for judging market direction. Rather, I would look at several indicators before making a judgment as to whether stocks are looking more or less attractive.
Income Strategies for a Low Yield Environment [View article]
Kenji,
I purposely left covered calls out of the article, because most of members (but certainly not all) do not use options. As to your comment about risk, a covered call strategy still leaves you exposed to a big drop in a common stock's price. Though covered-calls do provide some income, the post-transaction and post-tax profit may not be to provide much a cushion. (And yes, I realize this statement depends on several factors.)
Income Strategies for a Low Yield Environment [View article]
Regarding MLPs, my understanding is that does not matter if the IRA is a traditional or an Roth, the UBTI rules apply the same. Here is what the National Association of Publicly Traded Partnerships says on the issue: There is a concept in the tax code (I.R.C. §§511-514) called “unrelated business income tax” (UBIT). Under the UBIT rules, tax-exempt institutions and retirement accounts must pay tax on income from a business that is not related to their exempt purpose (a university operating a business that had nothing to do with education would be an example).
Because of the pass-through nature of an MLP--or any partnership (no tax paid by the partnership, all tax items flow through to the limited partners/shareholders, who pay tax on their share), the shareholders are treated by the tax code as if they are directly earning the MLP’s income. Thus, as a shareholder in the MLP, the IRA, 401(k), or other account is considered to be “earning” its share of the MLP’s business income.
The tax is owed on the retirement account's share of the MLP’s taxable business income, minus its share of depreciation and other deductions related to the business, as reported on the K-1, (not on the quarterly distributions). There is a deduction that covers the first $1,000 of unrelated business income from all sources; after that, the retirement account will owe tax.
It is important to remember that you are not the one who will owe any unrelated business income tax on MLP units held in your retirement account. The tax is owed by the IRA, 401(k), or other account itself. It is the responsibility of the custodian of the account to file a tax return (form 990, the return for tax-exempt organizations) and pay any tax owed out of the account’s funds.
You should also note that the tax applies only to the income allocated to the retirement account each year while it holds the MLP units. It does not affect the treatment of capital gain realized when the units are sold. This would remain exempt from taxation.
Income Strategies for a Low Yield Environment [View article]
Regarding MLPs, Robert Carlson of Retirement Watch.com addressed the subject in the March 2010 AAII Journal:
"Investors are most likely to be trapped by UBTI when an interest in a pass-through business entity (partnership, S corporation, or limited liability company) is held in an IRA. The IRA’s share of a pass-through entity’s income is considered UBTI regardless of the account holder’s ownership percentage of the entity. Pass-through entities generally do not pay federal income taxes. Instead, their income and expenses are passed through to their owners’ income tax returns.
"This rule most often trips up individuals who invest their IRAs in master limited partnerships (MLPs)—such as pipeline partnerships—or real estate partnerships. Master limited partnerships are traded on major stock exchanges, and many people think of them as being the same as corporate stock. In fact, these are limited partnership units, and the income and expenses of the partnerships pass through to the owners at tax time. When distributions from master limited partnerships to an IRA exceed $1,000, taxes are due on that income.
"Individuals generally are urged not to purchase master limited partnerships through IRAs. Unlike collectibles, investments in MLPs and other pass-through entities can be held in an IRA. However, the ownership triggers the UBTI tax and the requirement to possibly file a version of Form 990 and pay estimated taxes.
"When an IRA does own master limited partnerships and earns income of more than $1,000 for the year, some tax advisers recommend taking the easier and cheaper route of reporting any IRA-owned pass-through income on the IRA owner’s individual tax return instead of preparing a separate return for the IRA."
Geoffrey - Thanks for the clarification on the preferreds.
AAII Sentiment Survey: Bullish Sentiment Jumps to 49.0% [View article]
There have been correlations between our weekly sentiment survey and market reversals when bullish or bearish readings reach very levels. Like any indicator, however, it needs to be used with other signals.
There is no single timing indicator that will tell you when to get in and get out.
Investor Sentiment and Subsequent Returns [View article]
Thanks for the running the numbers. The analysis is similar to what we've seen in other studies, which show a correlation between extreme bullish and bearish readings and market turning points.
As you mentioned, our survey should be used in conjunction with other indicators.
AAII Investor Update: Dividends and Buybacks- A Good Use of Corporate Cash? [View article]
tweedn - Thanks for the kind words. I personally prefer dividends over buybacks as well, though buybacks are preferable to bad business ventures and they do provide greater flexibility for a company undergoing strong growth.
AAII members can download a spreadsheet with the all of the survey's historical data and a chart plotting the data against the S&P 500. (Membership is just $29 per year.)
Since the survey is conducted weekly, there are a lot of data points and therefore the Excel chart gets messy. What we have found is that over time, extremes in the sentiment readings are correlated with market reversals. There is no single magic indicator, however, and the sentiment numbers should be considered within the broad context of other factors.
Steve - just call or email me anytime you need investment data, quality fantasy football advice or someone to boost viewership of the Zacks’ videos and TV show. :)
Stone Fox Capital - Our sentiment survey is conducted weekly and I believe the mutual fund data is tabulated monthly, so it would not be an exact overlay of data. I've never seen a study trying to combine the two, but I know some researchers have done long-term studies using our survey data.
Preparing for the Likely Scenario of Deflation [View article]
Larry,
The scenario of low inflation and slow growth, but not deflation is based on what many economists are currently projecting. As to whether they are being too optimistic or too pessimistic is for each investor to determine.
I'm not making a forecast, just presenting the data and giving investors factors to consider should the U.S. continue experiencing such an environment.
Preparing for the Likely Scenario of Deflation [View article]
Thanks for the feedback.
As I said in the article, this is not a call for history to repeat itself - I acknowledged that the conditions are different now, but rather simply evidence that Japan is not the only scenario we could be looking at in terms of slow growth and low inflation.
AAII Investor Update: Stocks Are Pricey, But Inexpensive [View article]
As far as the comments, anchoring is a very common error among investors of all skill levels--and it is very important to be aware of it.
Just look at all of the current chatter about Facebook. Yes, the stock is now $6 below its offering price, but it is still very expensive on a valuation basis. But, how much do you hear about the stock's P/E ratio?
So is the article simple, yes? But, it's underlying point is very important.
-Charles Rotblut
AAII
AAII Sentiment Survey: Bullish Sentiment Near A 2-Year Low [View article]
It should have read, "This is also the seventh consecutive week that bullish sentiment has been below its historical average of 39%."
Unfortunately, the typo slipped by both me and my editors. I've asked Seeking Alpha to correct.
Sorry for the confusion,
Charles
AAII Investor Update: How I Monitor My Stocks [View article]
We have not announced the location yet. We'll probably make an announcement near the end of this year or early next year.
-Charles
Rewards May Exist in Muni Bonds [View article]
AAII Asset Allocation Survey: 11-Month High for Stock Allocations [View article]
Thanks for being a member.
It is a small percentage of total membership and we do not use random sampling for the surveys, so there are those caveats that must be considered when looking at the survey results. Nonetheless, there is a long history (which can be downloaded at AAII.com) to compare the current results against.
As far as the ICI mutual fund flow data, they measure the fund flows for 95% of all mutual funds. Thus, the data includes both individual and institutional inflows and outflows.
Our surveys provide insight, but I do not recommend using them as the sole indicator for judging market direction. Rather, I would look at several indicators before making a judgment as to whether stocks are looking more or less attractive.
Hope this helps,
Charles
Income Strategies for a Low Yield Environment [View article]
I purposely left covered calls out of the article, because most of members (but certainly not all) do not use options. As to your comment about risk, a covered call strategy still leaves you exposed to a big drop in a common stock's price. Though covered-calls do provide some income, the post-transaction and post-tax profit may not be to provide much a cushion. (And yes, I realize this statement depends on several factors.)
-Charles
AAII
Income Strategies for a Low Yield Environment [View article]
There is a concept in the tax code (I.R.C. §§511-514) called “unrelated business income tax” (UBIT). Under the UBIT rules, tax-exempt institutions and retirement accounts must pay tax on income from a business that is not related to their exempt purpose (a university operating a business that had nothing to do with education would be an example).
Because of the pass-through nature of an MLP--or any partnership (no tax paid by the partnership, all tax items flow through to the limited partners/shareholders, who pay tax on their share), the shareholders are treated by the tax code as if they are directly earning the MLP’s income. Thus, as a shareholder in the MLP, the IRA, 401(k), or other account is considered to be “earning” its share of the MLP’s business income.
The tax is owed on the retirement account's share of the MLP’s taxable business income, minus its share of depreciation and other deductions related to the business, as reported on the K-1, (not on the quarterly distributions). There is a deduction that covers the first $1,000 of unrelated business income from all sources; after that, the retirement account will owe tax.
It is important to remember that you are not the one who will owe any unrelated business income tax on MLP units held in your retirement account. The tax is owed by the IRA, 401(k), or other account itself. It is the responsibility of the custodian of the account to file a tax return (form 990, the return for tax-exempt organizations) and pay any tax owed out of the account’s funds.
You should also note that the tax applies only to the income allocated to the retirement account each year while it holds the MLP units. It does not affect the treatment of capital gain realized when the units are sold. This would remain exempt from taxation.
Income Strategies for a Low Yield Environment [View article]
"Investors are most likely to be trapped by UBTI when an interest in a pass-through business entity (partnership, S corporation, or limited liability company) is held in an IRA. The IRA’s share of a pass-through entity’s income is considered UBTI regardless of the account holder’s ownership percentage of the entity. Pass-through entities generally do not pay federal income taxes. Instead, their income and expenses are passed through to their owners’ income tax returns.
"This rule most often trips up individuals who invest their IRAs in master limited partnerships (MLPs)—such as pipeline partnerships—or real estate partnerships. Master limited partnerships are traded on major stock exchanges, and many people think of them as being the same as corporate stock. In fact, these are limited partnership units, and the income and expenses of the partnerships pass through to the owners at tax time. When distributions from master limited partnerships to an IRA exceed $1,000, taxes are due on that income.
"Individuals generally are urged not to purchase master limited partnerships through IRAs. Unlike collectibles, investments in MLPs and other pass-through entities can be held in an IRA. However, the ownership triggers the UBTI tax and the requirement to possibly file a version of Form 990 and pay estimated taxes.
"When an IRA does own master limited partnerships and earns income of more than $1,000 for the year, some tax advisers recommend taking the easier and cheaper route of reporting any IRA-owned pass-through income on the IRA owner’s individual tax return instead of preparing a separate return for the IRA."
Geoffrey - Thanks for the clarification on the preferreds.
-Charles
AAII
AAII Sentiment Survey: Bullish Sentiment at 42.5%, Stays Above Historical Average [View article]
AAII Sentiment Survey: Bullish Sentiment Jumps to 49.0% [View article]
There is no single timing indicator that will tell you when to get in and get out.
-Charles Rotblut
AAII
Investor Sentiment and Subsequent Returns [View article]
As you mentioned, our survey should be used in conjunction with other indicators.
-Charles Rotblut
AAII
AAII Investor Update: Dividends and Buybacks- A Good Use of Corporate Cash? [View article]
AAII Weekly Sentiment Survey: Bullish Sentiment Crosses 50% Threshold [View article]
Since the survey is conducted weekly, there are a lot of data points and therefore the Excel chart gets messy. What we have found is that over time, extremes in the sentiment readings are correlated with market reversals. There is no single magic indicator, however, and the sentiment numbers should be considered within the broad context of other factors.
Steve - just call or email me anytime you need investment data, quality fantasy football advice or someone to boost viewership of the Zacks’ videos and TV show. :)
Stone Fox Capital - Our sentiment survey is conducted weekly and I believe the mutual fund data is tabulated monthly, so it would not be an exact overlay of data. I've never seen a study trying to combine the two, but I know some researchers have done long-term studies using our survey data.
-Charles Rotblut, AAII
Preparing for the Likely Scenario of Deflation [View article]
The scenario of low inflation and slow growth, but not deflation is based on what many economists are currently projecting. As to whether they are being too optimistic or too pessimistic is for each investor to determine.
I'm not making a forecast, just presenting the data and giving investors factors to consider should the U.S. continue experiencing such an environment.
-Charles
Preparing for the Likely Scenario of Deflation [View article]
As I said in the article, this is not a call for history to repeat itself - I acknowledged that the conditions are different now, but rather simply evidence that Japan is not the only scenario we could be looking at in terms of slow growth and low inflation.