Technically speaking, the Ides of March is nothing more than a date on the Roman calendar. March 15th, to be exact. But it has sinister implications because it just so happens that the Roman emperor, Julius Caesar, was stabbed to death on March 15th 44 BC by the very senators who were supposed to serve him. It was in his play, Julius Caesar, that William Shakespeare wrote “beware the Ides of March.”

The Death of Caesar

So, what does any of this have to do with investing and the stock market?

I’m glad you asked.

Minyanville has an article that asks if March 2010 is going to be October 1987 all over again. For those of you who weren’t investing in 1987, let me share why this is a watershed moment in recent stock market history:

Monday, October 19, 1987 is known as “Black Monday” because it was the largest single-day crash in the post-Depression era.

So, according to the Minyanville article, hedge fund managers see a crash coming….

Jon Markman of Markman Capital Insight has been talking to a lot of fund managers, and they see a lot of similarities in the way the market (S&P 500) is behaving these days and how it behaved in the run up to the ‘87 crash.

“Now these managers think the next set of steps would be a sharp decline on Thursday or Friday, a series of 0.5% to 1% single-day declines next week, followed by a plunge, let’s say, next Friday and a crash around March 15,” Markman writes.

They have a scary looking chart to go along with this speculation.

But the managers that Markman has spoken with see many fundamental and economic similarities between then and now, so it’s more than just an eerie chart they say.

Here’s a list of those similarities:

• legislation that could cause investors to dramatically lower their estimates of stock values

• a lack of liquidity

• a sense of overvaluation after a steady recent advance

• revelations of a massive budget deficit

• expectations of a sharp fall in the value of the dollar and an expectation of higher interest rates

They also interviewed Mike O’Rourke, chief market strategist at BTIG, and he sees things differently.

“He doesn’t see any indications that this stock market is ready to take such an awesome tumble.

“I see the market as in a recovery rally,” the strategist tells us. “Liquidity has slowed down and dried up, but that’s because we had a nice rally and now we’re consolidating and building a base.”

Who’s to say who is right? Even Markman admits “There isn’t enough data.”

Time will tell who’s view is the correct one, but it’s never a bad idea to nudge your stop losses up a little to act as a safety net.

• A Sample ETF Portfolio for Long Term Growth. Here's an all ETF portfolio that's sure to see some volatility. It's geared toward long term growth, and as such it invests heavily in small cap stocks, foreign markets and commodities. The fund total is 90% stocks, 10% commodities and is best left to investors with long time horizons and......
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Stock market analyst Robert Prechter is seeing what he calls “the Biggest Bubble in History”, and that’s not a good thing for investors.

According to The Wall Street Journal, Prechter told the Society of Technical Analysts in London that we are in the midst of a “grand, super-cycle top” and that all the signs are pointing toward a big market correction.

He’s got some street cred, given that he called the recent rally back in February of 2009. In fact, he said it would be “sharp and scary” for anyone shorting the market at that time.

According to Prechter, the most recent recovery gave all the text book signs and now he seeing text book signs again, but they foretell a big correction on the horizon. He points to the near record low levels of cash at mutual funds. He sees those levels approaching levels seen near major tops in 1973, 2000 and 2007.

As for the “Biggest Bubble in History”, he says that’s debt. Specifically, Corporate debt, municipal debt, mortgages and consumer loans which he speculates will get hammered by the deflationary period that began with 2005’s turnaround in home prices.

Time will tell if he’s right, but it may be time to put your stops in place and watch this video to see Prechter in his own words.

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Target date funds have been in the news quite a lot over the past few years, though the nature of the news seems to have gone from great to bad over that time. Consider that when target date funds were first introduced they were heralded as the pinnacle in the evolution of investment vehicles. They were the ultimate in “set it and forget” investing!

These funds were so universally praised by the investment community and politicians alike that when congress passed the Pension Protection Act (PPA) allowing companies to automatically enroll employees in 401(k) accounts, it was target date funds that were chosen most often as the default fund, or “qualified default investment alternative” (QDIA) in the lingo of the PPA.

Then the crash of 2008-2009 happened.

2010 Target date funds performed horribly in that crash. This gave target date funds a lot of bad publicity. After all, the idea of a 2010 target date fund was that it would be invested in less risky assets as 2010 got closer, right?

Maybe.

See, the problem isn’t really that these funds lost as much as the average stock fund, or even that they were tilted too heavily in the direction of stocks. There are really two problems at the root of all this:

1. The crash of 2008 was not a garden variety stock market crash.
2. People’s perspectives on retirement savings is skewed.

Problem One: The crash of 2008.

The crash of 2008 was a once in a lifetime kind of phenomenon, one in which almost every investment asset lost value. The problem for target date funds regarding this kind of crash is: where should the majority of assets held in a 2010 target date fund be allocated?

In a garden variety stock market crash, or correction of say 10-15% or even 20% loss in stocks, a hefty bond allocation is usually enough to provide proper ballast to limit the total losses for the fund. But in 2008, just about the only safe place was cash, or gold and in any normal investment environment a majority of holdings in cash or gold would be a money loser.

Problem Two: Investor perspective.

This problem affected target date funds because investors simply did not expect a 2010 fund to lose 35% -40% of its value so close to the target date. But I think this is really the result of an underlying mistake in expectation on the part of the investor.

Too many investors have it in their mind that they will be taking all their money out of the stock market when they retire.

Maybe it’s the way these funds are marketed, but I know a lot of investors think that the clock stops when they retire and that what they have in their investment account is what they have for the rest of their lives. This is simply not true. The average retiree today can expect to live another 15-20 years. The fact is that they will still need to be invested in stocks in order for their savings to last as long as they do.

Solutions.

I think just about the only solution one can have for the first problem (the unusual market crash) is to have a sizeable sum of cash saved up for immediate access if you have just retired or are about to retire when such a crash hits. Something along the 9-12 month of expenses range, maybe more if you tend to panic about finances. This ought to allow the investor to weather the crash and not have to deplete his investment account while it is suffering heavy losses.

The solution to the problem of investor perception is also covered by the huge sum of cash savings fix to the first problem, but there is also a long term mental shift that needs to happen. Investors and retirees need to consider post-retirement investing. Far too many people think about investing or saving for retirement as the end game, when in reality it’s just an inflection point where the nature of investing changes but the need continues; the only true end point is the end of life, after which you get into estate planning.

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The January Effect is an investing term that refers to a general increase in the stock market during the month of January. This effect is typically attributed to an increase in buying caused by the addition of employees yearly bonuses being contributed to their 401(k) plans, and also due to investors getting back into the market after having sold in the previous December for tax purposes.

It is said that the January Effect affects small caps more than mid or large cap stocks, though this has been less pronounced in recent years as investors learn about and anticipate the January Effect.

It is also considered less important as there is less cause to sell laggard stocks for tax purposes, but that may change as taxes increase on investments and investment income.

Let’s hope it’s not a hard fast rule when we look at the S&P’s performance for this past January:

… and there IS hope: Check out this MarketWatch article on why January’s loss doesn’t automatically doom the rest of the year.

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Apple Inc has generated a lot of buzz recently with the hype over its latest geek-chic techno status symbol – the Tablet.

But is that hype really over-hype? Is Apple, and more important for investors – apple stock, going to benefit from this new gadget?

I personally don’t think so, and neither does Jeremy Glaser at Morningstar.com.

Apple stock looks overheated. Sure the loyal Apple fans will run out and buy the tablet because their social status depends upon it, but are they likely to have more demand than that? In this greatest of recessions, are people going to not only shell out big bucks to purchase the tablet but then pay to read book and newspaper content they can currently get online for free?

This just seems like another Kindle – another attempt to produce a new piece of technology to revolutionize our lives. But the technology that truly revolutionizes how we do things is typically never planned to do so, but rather happens by serendipity.

Besides, the tablet has been hyped for so long now, it’s already priced into the stock so the upside is limited.

Mr. Glaser goes on to argue that the market in general is over valued anyway, and so Apple is already close to fair market value and hence carries limited upside potential. Of course, that’s a value-oriented approach and many investors in the market today are focused on growth, so in the short term Apple may get a bit of a pop.

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According to Burton G. Malkiel, a Princeton economics professor, and Charles D. Ellis, author of ‘Winning the Loser’s Game,’ the only difference between them and Warren Buffet is that Warren Buffet hasn’t made these mistakes.

Of course, it’s more than that but since you and I (or Malkiel and Ellis for that matter) don’t have any chance of acquiring Buffet’s DNA, we’ll focus on this list – in the spirit of accepting what cannot be change, and having the courage to change the things that can be changed.

6 investing mistakes to avoid:

• Overconfidence
• Following the Herd
• Timing the Market
• Assuming More Control Than You Have
• Paying Too Much in Fees
• Trusting Stockbrokers

By way of proof of Buffet’s unique investment acumen and, more importantly, his ability to focus and remain true to his core investment philosophy, Malkiel and Ellis cite two prime cases when Buffet was tested by the markets and prevailing “common knowledge”.

Case number One was when Buffett avoided the dot com bust of 2000, simply because tech stocks fit neither his investment style, or his philosophy. But he held firm to his approach, even when it was called outdated by the rest of the investment world. As a result, his portfolio avoided much of the carnage that befell those more “enlightened” investors.

Case number two was when Buffett avoided mortgage-backed securities and derivatives in 2005-2006, because he found them too complex and “opaque”. As a result, he avoided the worst of the damage caused by the economic collapse that ensued.

In regards to the list above, you can see how Buffett’s sense of humility, and discipline have kept him from making many of the mistakes out lined in more detail in Malkiel and Ellis’ original article.

Burton G. Malkiel, Princeton economics professor and author of ‘A Random Walk Down Wall Street,’ and Charles D. Ellis, author of ‘Winning the Loser’s Game,’ have teamed up to write ‘The Elements of Investing.’

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The January Barometer is based on the theory that the performance of the S&P 500 during the month of January is indicative of how the market will perform for the year. For example, if the S&P 500 is up for January, the January Barometer states that the stock market as a whole should end the year up as well.

In practice, the January Barometer produces a slightly better than 50% success rate. However, if an investor simply uses the January Barometer when determining whether to invest, he is doing little more than timing the market.

Even worse, he’s timing the market with a very insensitive timing mechanism, since the theory bases the prediction of market performance for an entire year on the performance of a single month.

Also, any gain that may be had by blindly following the January Barometer theory can be quickly erased by a false prediction of a bull market for the year ahead.

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Morningstar has released their picks for Best Mutual Fund Managers of 2009. It’s important to remember that the competition is intended as an acknowledgement of past achievements, not as a recommendation for future performance..

That being said, the rankings are determined by a number of factors, not just best return for the calendar year. And the results are given in three categories: Domestic equities, international equities, and fixed income.

Here are the winners.

Domestic Equity

Bruce Berkowitz of Fairholme Fund (FAIRX)
2009 Return/Percentile Rank: 39.0/9th

The Fairholme fund returned 39% (12.5% better than the S&P 500) despite not holding any technology stocks and keeping 17% in cash!

Much of what made this fund perform so well is what the Mr. Berkowitz did in 2008 and 2007.

International Equity

The Team at American Funds EuroPacific Growth (AEPGX)
(Stephen Bepler, Mark Denning, Robert W. Lovelace, Carl Kawaja, Sung Lee, Nicholas Grace, Jonathan Knowles, and Jesper Lyckeus)
2009 Return/Percentile Rank: 39.1%/15th

This fund did so well because the management team was in the right place at the right time – developing markets (i.e. emerging markets!), which went on a tear in 2009. The also reduced their cash stake to 5% in time to catch the market bottom and ensuing rebound. Nice work.

Fixed-Income

The Team at Loomis Sayles Bond (LSBRX)
(Dan Fuss, Kathleen Gaffney, Matthew Eagan, Elaine Stokes)
2009 Return/Percentile Rank: 36.8%/14th

This team owes its success to a contrarian approach and the discipline to stick to that approach when times got really tough. The team went bargain hunting in corporate bonds just before the bottom fell out in 2008, and panic ensued.

They kept to their plan, convinced that the panic was overblown, and it paid off… to the tune of a 36.8% gain. Not too shabby for a fixed income fund!

Be sure to read the full article from Morningstar to get all the details on these terrific managers, as well as the process for picking them.

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A riskless society is a fictional society where the markets of the world are sophisticated enough to anticipate and mitigate any and all risks. While the idea is credited to Dr. Kenneth Arrow and Gerard Debreu, it is similar to one of Einstein’s famous thought experiments, where the thinker hypothesizes an imaginary situation for the purpose of examining various “what if” scenarios. In the case of the riskless society concept, it has led to improvement in theories of risk management.

The idea of a riskless society is based on assumptions of an efficient market which is said to be in equilibrium; a clearly imaginative scenario compared to empirical data of real world markets. Riskless society theories are used by people who study behavioral finance.

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Many investors take the change in calendar year as an opportunity to assess their portfolios and the future, and hopefully get their portfolios aligned with the future direction of the stock market. One way in which to do this is to look back on the year that’s passed and see what worked and what didn’t, then ponder whether those trends will continue for the new year, or fizzle out.

Morningstar has a great article on what was hot in 2009, and why.

For starters, what was hot:

4 general categories proved to spear head the market out of panic mode:

• Emerging markets
• Small cap stocks
• Commodities
• Technology

The hottest single category for the year of all Morningstar categories and asset classes was Latin America stock funds – up 112% for the year. Diversified emerging markets rose 72%, while Pacific/Asia ex-Japan funds were up 69%.

Morningstar attributes these numbers to two factors:

1. A general sense of relief when investors realized the panic of Q4 2008 – Q1 2009 was overblown and the global financial system wasn’t headed over the abyss. This led investors to dive back into more “adventurous” investments that they had previously fled.
2. China’s economy showed signs of being more resilient than other economies, leading investors to return to embracing the trend of Chinese growth potential.

One could also argue, though the Morningstar article doesn’t, that the interest in commodities was due to an overall trend of uncertainty about the future caused in large part by un restrained government spending and historic federal deficits. Many people are hedging toward protecting for a possible currency crisis or at the very least, rapid rise in inflation.

Small cap and Tech stocks were hot because those kinds of stocks typically lead an economic recovery, so investors were looking to catch any stock market recovery in the early stages.

Check out the Morningstar article to see more of their reasoning behind the numbers.

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