MAKE UP TO BREAK UP?

With the recently announced split of General Electric (GE) into three parts and Johnson & Johnson (JNJ) into two, it seems like a good time to discuss why some companies split up. It’s also a good time to discuss why companies merge in the first place. The short answer is because their stock will go up. The foremost job of the CEO of a public company is to maximize shareholder value, which results in an increased stock price. While that may sound cynical, CEOs are largely compensated via company stock…

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NOT CHOOSING SIDES IN THE GROWTH VS. VALUE DERBY

While the global pandemic has impacted many facets of everyday life, it remains too early to say with certainty which changes will endure and which will prove temporary. In equity markets, the strong outperformance of Growth stocks relative to Value stocks has led many investors to question if they should be focusing their efforts solely on Growth investing. For the reasons discussed below, we remain committed to constructing a “Core” equity portfolio consisting of both Growth and Value stocks. Before diving into the numbers, the table below provides general characteristics…

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LIQUIDITY AND HOW IT AFFECTS YOUR PORTFOLIO

Liquidity refers to the ability to purchase or sell an asset without drastically changing the price. Cash is considered to be the most liquid asset as it can easily be converted into other assets. Assets traded over an exchange like Exchange Traded Funds (ETFs) and most stocks, are liquid, as they are traded frequently and with relative ease. One way to measure liquidity is through the bid-ask spread. Bid refers to the price at which a buyer is willing to buy, and an ask is the price at which a…

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MONTE CARLO SIMULATIONS AS A TOOL IN RETIREMENT PLANNING

Financial planning for retirement can be a tricky exercise, requiring both the client and the planner to make many assumptions about an uncertain future. Monte Carlo simulations try to address this uncertainty by acknowledging the very wide range of possible outcomes in a portfolio’s value over time and assigning a probability to the outcomes based on thousands of random trials. A Monte Carlo simulation is a statistical tool that has been used in many disciplines to look at the variety of outcomes from a given set of inputs. It gets…

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THE IMPACT OF THE RETAIL TRADER

The “Retail Trader” has become a story in 2020 with analysts trying to understand their exact impact on the market, and if he or she is the reason behind the elevated volatility and current relatively high valuation. The story originated with online brokers going to $0 commissions in the fall of 2019 and intensified this year, as the pandemic kept people at home with limited outlets for excess energy. The volume of retail trades increased from 137 billion in the 1st quarter to 264 billion in the 2nd quarter -…

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