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Here’s a look at how the Dow has performed, on average, throughout the year. I used all the daily closings since 1896.

Looking at the annual trend, there are two basic surges. The biggie is from October 29 to May 6, when the Dow rises 7.79%, which is about 93% of the annual gain. The rest of the time, the Dow gains just 0.49%. The other big surge is from May 25 to September 6 when the Dow rises an average of 4.72%.

The average sell-off from May 6 to May 25 is -1.25%, and the one from September 6 to October 29 is -2.82%.

The most impressive short-term gain is from December 21 to January 7 when the Dow averages a gain of 3.39%.

Posted by Eddy at 11:59 AM | Permalink

Last year, I wrote that Walgreen was too expensive at $44 a share. Let's just say that it wasn't one of my more popular posts. One commenter at Seeking Alpha was abusive that the editors there had to rewrite his comment.

Today, the company announced a 4% profit decline. The shares are now down to $39. It doesn't look like things will get better soon:

Net income was $396.5 million, or 40 cents a share, compared with $412.3 million, or 41 cents, in the quarter a year earlier.

It was the first decline in quarterly profit since early in the 1998 fiscal year, and executives warned that trouble could persist.

Revenue in the period, which ended Aug. 31, rose more than 10 percent, to $13.4 billion from $12.2 billion.

Analysts expected earnings of 47 cents a share and revenue of $13.5 billion.

"Many of the challenges we faced in this quarter will continue, including comparisons to last year’s blockbuster generics," said Rick Hans, the company’s director of finance.

Posted by Eddy at 11:40 AM | Permalink

Business Week looks at GorillaTrades:

But does the gorilla deliver for investors? A BusinessWeek analysis of the service's picks found they performed far worse than the stock market as a whole.

The company has attracted attention thanks to its quirky approach and heavy advertising. It has refused to divulge the identity of the firm's founder and chief spokesman, who calls himself "the gorilla." Nor does it give out results on the overall performance of his picks. However, BusinessWeek has learned that the gorilla is a former stockbroker named Ken Berman, in Jupiter, Fla., who has confirmed that fact in an interview.

Posted by Eddy at 11:14 AM | Permalink

UBS to write off $3.4 billion

UBS AG, the world's largest wealth manager, unveiled $3.4 billion in losses, swept out senior managers and slashed jobs in one of the biggest casualties yet worldwide from the credit crunch.

UBS said on Monday it would write down 4 billion Swiss francs ($3.42 billion) in losses in its fixed income portfolio and elsewhere, resulting in a third-quarter loss of 600-800 million Swiss francs, its first quarterly loss in nine years.

UBS said it would shed 1,500 jobs in its investment bank.

Can they do that?

Jerry : So were going to make the Post Office pay for my new stereo?
Kramer : It's just a write off for them.
Jerry : How is it a write off?
Kramer : They just write it off.
Jerry : Write it off what?
Kramer : Jerry all these big companies they write off everything
Jerry : You don't even know what a write off is.
Kramer : Do you?
Jerry : No. I don't.
Kramer : But they do and they are the ones writing it off.
Jerry : I wish I just had the last twenty seconds of my life back.

Posted by Eddy at 3:02 PM | Permalink

Fox Business News is coming October 15. The Web site is now live.

Posted by Eddy at 2:23 PM | Permalink

Now that we have three quarters under our belt, let's look at the Crossing Wall Street Buy List. For the year, the Buy List is up 1.88% compared with 7.65% for the S&P; 500 (dividends not included). The Buy List has been about 7% less volatile than the S&P; 500.

Posted by Eddy at 11:19 AM | Permalink

With today’s announcement from Citigroup, the subprime may still have a ways to go, but the political issue is just getting started.

Yesterday’s Washington Post had an absolutely wretched article by Jim Rokakis, the treasurer of Cuyahoga County, Ohio. It’s almost something out of the The Onion. He basically blames the death of a little girl and an elderly man on predatory lenders. I’m not exaggerating:

Twenty years ago, the Slavic Village neighborhood of Cleveland was a tightly knit community of first- and second-generation Polish and Czech immigrants. Today, it's in danger of becoming a ghost town, largely because a swarm of speculators, real estate agents, mortgage brokers and lenders saw an opportunity to make a buck there.

You could say it was because of them that 12-year-old Asteve' "Cookie" Thomas lost her life on Sept. 1, shot in Slavic Village when she stumbled into the crossfire of suspected drug dealers.

No, you can’t. You could, however, blame her death on the suspected drug dealers who fired at her. I'm going to take a wild guess and say that they're probably actual drug dealers as well.

It gets worse:

The Federal Reserve's recent decision to cut interest rates may calm the nerves of Wall Street bankers, but it won't bring back Cookie Thomas or Joe Krasucki.

Vile.

I think another Sarbanes-Oxley is on the way.

Posted by Eddy at 11:09 AM | Permalink

Joe Nocera has an interesting story about investing and emotions (via Mankiw).

“There is a story in the book about Harry Markowitz,” Mr. Zweig said the other day. He was referring to Harry M. Markowitz, the renowned economist who shared a Nobel for helping found modern portfolio theory — and proving the importance of diversification. It’s a story that says everything about how most of us act when it comes to investing. Mr. Markowitz was then working at the RAND Corporation and trying to figure out how to allocate his retirement account. He knew what he should do: “I should have computed the historical co-variances of the asset classes and drawn an efficient frontier.” (That’s efficient-market talk for draining as much risk as possible out of his portfolio.)

But, he said, “I visualized my grief if the stock market went way up and I wasn’t in it — or if it went way down and I was completely in it. So I split my contributions 50/50 between stocks and bonds.” As Mr. Zweig notes dryly, Mr. Markowitz had proved “incapable of applying” his breakthrough theory to his own money. Economists in his day believed powerfully in the concept of “economic man”— the theory that people always acted in their own best self-interest. Yet Mr. Markowitz, famous economist though he was, was clearly not an example of economic man.

Posted by Eddy at 10:49 AM | Permalink

West Side Story opened 50 years ago this week.

Posted by Eddy at 7:36 PM | Permalink

I didn't have a chance to write about this before but Bed Bath & Beyond (BBBY) earned 55 cents a share for its fiscal second quarter.

Here are the earnings results going back a few years:

Posted by Eddy at 12:55 PM | Permalink

Here’s an unusual recent development.

From July 3 to September 19, the stock and bond markets moved in opposite directions 80% of the time (I’m using the SPX & TLT).

But in the six trading days since, they’ve moved in different directions just once.

Obviously, it’s too early to read any major significance into this, but it’s something worth watching. There’s also the question of what the consequences are.

If the stock and bond markets are indeed, converging, I’m inclined to think it’s a healthy sign for both markets.

Posted by Eddy at 10:29 AM | Permalink

Paul Kedrosky runs Infectious Greed, one of my favorite blogs. Here he is on Wall Strip.

Posted by Eddy at 9:23 AM | Permalink

Step #1: Sell everything you own. Sell it all. Stocks, bonds, real estate. eBay your couch, you dog. Everything.

Step #2: Then convert it all into pre-1982 copper pennies.

Step #3: Meltdown the pennies.

Step #4: Sell the copper.

Step #5: Now use your proceeds to buy back all the stuff you sold. You’ll have more than enough left over.

The material in a pre-1982 penny is currently worth about 2-1/2 cents.

Update: It's not exactly legal.

Posted by Eddy at 7:04 AM | Permalink

Hmmm.

People know that integrity will help them in the business world. It can also boost their investment results. That's the finding of a recent survey of advisers at Ameriprise Financial Services. The study sought to find out the impact of various adviser traits on their investment results.

It studied 12 emotional and moral competencies, such as client service and self-confidence.

The results showed that the adviser's level of integrity played the biggest part in posting strong investment returns.

"Most people we deal with are high performers," said Rick Aberman, a founding partner of consulting firm Lennick Aberman Group, which like Ameriprise is based in Minneapolis and assisted with the survey. "We wanted to look at what differentiated those who are successful from those who are really successful."

Ameriprise paid for the study. It sought to find out whether emotional competency and integrity led to better performance, says Kris Petersen, the firm's general manager of financial planning and advice.

"I assumed the results would be better (for those who had more integrity), but not by as much as it was," she said.

Integrity showed up in advisers' ability to act the way they believe and to do what they say they will, Aberman says.

During my career, I've worked for three different brokerage firms and there I met some of the most dishonest people I've ever met in my life.

Posted by Eddy at 10:28 AM | Permalink

Biomet was taken off the market yesterday for $46 a share. Here's a look at the stock's amazing run. In 23 years, the stock went up by more than 200-fold.

I have to do a little housekeeping for my Buy List. This will be a dull post, but since we now know how important integrity is to our returns, I want to be as thorough as possible.

I’ll go over the rules again. At the start of each year, I pick 20 stocks for the Buy List. I’m not allowed to make any changes during the entire year. I assume a portfolio of $1 million, with $50,000 invested in each position.

For track record purposes, I’m going to take the Biomet proceeds and invest them equally in the 19 other stocks. I thought about keeping the proceeds in cash until the end of the year, but that doesn’t seem right.

At the start of the year, the Buy List had 1211.5338 shares of Biomet at $41.27. With the $46 buy-out price, that gives us a total of $55,730.5548. Divided 19 ways, that means we invest $2,933.1871 in each stock.

Here’s how I calculated the new number of shares:

Stock........9/25 Close........New Shares.......Starting Shares........New Total
AFL.............$55.94.............52.4345.............1086.9565.............1139.3910
APH............$39.22.............74.7880.............1610.8248.............1685.6128
BBBY...........$33.20.............88.3490.............1312.3360.............1400.6850
DCI.............$41.52.............70.6452.............1440.5071.............1511.1523
DHR............$83.82.............34.9939...............690.2264..............725.2203
FDS.............$66.10.............44.3750...............885.2691..............929.6441
FIC..............$36.11.............81.2292.............1230.0123.............1311.2415
FISV.............$50.46.............58.1290..............953.8344.............1011.9634
GGG.............$38.10.............76.9865............1261.9889.............1338.9754
HOG.............$46.51.............63.0657.............709.5218...............772.5875
JOSB.............$35.08.............83.6142...........1703.5775.............1787.1917
MDT..............$56.26.............52.1363.............934.4048...............986.5411
NICK.............$8.93.............328.4644............4237.2881.............4565.7525
RESP.............$48.74............60.1803.............1324.5033.............1384.6836
SEIC.............$25.92...........113.1631.............1678.9792.............1792.1423
SYY..............$34.70.............84.5299.............1360.1741.............1444.7040
UNH.............$49.48.............59.2803..............930.5788...............989.8591
VAR..............$39.09.............75.0368.............1051.0826.............1126.1194
BER..............$28.99............101.1793............1448.8554.............1550.0347

Posted by Eddy at 9:58 AM | Permalink

Here's how the Dow Industrials have performed by each day of the week going back to 1896.

Note that the lines aren't exactly lined up because there aren't the same number of trading days for each day.

Yuck, that Monday line is horrible. In fact, the Dow is down 58% for Monday, Tuesday and Thursday combined. So much Efficient Market Theory! To be fair, Monday has recovered a lot since 1987.

The big winner is Friday, but Wednesday has slowly closed the gap over the past few decades. And as I’ve written before, Wednesday has been the big winner of the past few years. In fact, all of the market’s gain has come on Wednesday.

Here are the average returns for each day:
Monday..............-0.0784%
Tuesday..............0.0379%
Wednesday.........0.0550%
Thursday.............0.0220%
Friday..................0.0634%

Here are the standard deviations:

Monday..............1.3849%
Tuesday..............1.0616%
Wednesday.........1.1106%
Thursday.............1.0350%
Friday..................1.0536%

Posted by Eddy at 9:31 AM | Permalink

Posted by Eddy at 9:07 AM | Permalink

Here's a small one. Check out these numbers for Smithtown Bancorp (SMTB).

Date EPS
1997 0.29
1998 0.31
1999 0.4
2000 0.47
2001 0.59
2002 0.79
2003 0.92
2004 1.02
2005 1.13
2006 1.43

The bank earned 73 cents a share for the first six months of this year.

Posted by Eddy at 3:04 PM | Permalink

One of the things I find fascinating about finance is how you can use markets for two items to create an “implied market” for a third. I've written about this before here, here and here. This idea is at the root of all the complex financial instruments that caused problems for so many hedge funds recently.

I’ll give you a good example I recently discovered. At InTrade.com, the site where you can trade futures on real world events, you can buy contracts on which candidate will win his or her party’s nomination next year. There’s a separate contract for which candidate will win the presidency.

So, if you divide the former by the latter, you get an “electability” contract. For example, according to recent prices, Rudy Giuliani has a 34.65% chance (I'm using the mid-point of the bid/ask spread) of getting the GOP nomination and a 15.95% of winning the presidency. So the market believes that if he gets the nomination, he has a 46.03% chance of winning (15.95% divided by 34.65%).

(The only minor flaw is that could include a candidate winning but not getting the nomination, however, I’m content with dismissing that possibility as beyond remote.)

What’s interesting is electability in the general election can have little impact on how well a candidate does in the primaries. Some people, myself included, think that Ronald Reagan would have had a better chance of beating Jimmy Carter in 1976 instead of Gerald Ford, even though Ford beat Reagan for the nomination.

I should add that I don’t place a great deal of faith in these real world futures markets. I simply see them as fun games to enjoy, but not to take too seriously. Also, the markets aren’t very liquid. In the following table I took the mid-point of each contract’s bid/ask spread. A minor change could have a big impact on the smaller-priced contracts.

Having said that, here’s a look at some candidate and the market’s take on their electability.

Candidate………To Get Nomination……To Win…......….Electability
Giuliani........................34.65...................15.95..................46.03
Romney.......................22.95...................8.85....................38.56
Thompson...................24.85....................9.60....................38.63
Paul..............................5.50....................1.95....................35.45
McCain.........................4.65.................... 2.35....................50.54
Hillary..........................67.05...................45.25..................67.49
Obama........................16.35....................8.25...................50.46
Edwards.......................6.95....................3.75....................53.96
Gore.............................8.05....................5.25....................65.21

Posted by Eddy at 10:59 AM | Permalink

At Deal Breaker, Bess Levin highlights Alan Greenspan’s predictive abilities. In the linked NY Post article, I was left speechless by Terry Keenan’s touting of Robert Shiller’s track record.

No wonder the average homeowner is confused. That's why when I want to really know about the real state of the real estate market, I want to hear from someone who has been predicting this whole debacle for years now - a spot-on observer like Robert Shiller of Yale University.

Shiller is in no need of reputation repair. Not only did he warn of the housing mess, he also called the Internet bubble with remarkable precision in his book "Irrational Exuberance."

Sorry Terry, but Shiller hasn’t been spot on—he’s been way off the mark. Shiller is a perma-bear and investors who followed his advice lost out in a big way. In the last five years, the S&P; 500 has doubled. Shiller missed that and every other rally. He was a bear long before the market nose-dived and he’s continued to be a bear ever since.

For some reason, there seems to be a strong bias to celebrate people who warn of market crashes. Perhaps it’s more dramatic. If you’re always warnings of a market crash, guess what? Sooner or later you’re going to be right! You're suddenly a wise market observer. No matter what you say after, your reputation can live off that forever. The people who make the undramatic prediction “no, don’t worry, everything’s ok” rarely get credit for being right.

Posted by Eddy at 10:09 AM | Permalink