Off to New York

I will be leaving for New York this afternoon and returning Sunday night. Please sumbit your articles for the Festival of Stocks by Monday, July 2nd.

Have a great rest of the week!

Hurray for the Festival!

This week I will be hosting the July 2nd edition of Festival of Stocks! Investors from all around will be sharing their insights right here on this blog! Check out Value Investing News for the complete details on what this festival is all about. To submit an entry to the festival, simply click here and fill out the Blog Carnival form.

Last week, my Behavioral Finance article was featured on Fat Pitch Financials and The Digerati Life. Student Load Consolidation Lowdown also shared my article on Asset Allocation.

Hurray for the Festival!

Load Up on Dividend Stocks

It has been a tough month for most investors as the DOW and S&P have fallen almost 2% each. Are there still buying opportunities, or is it time to sell and run? What fascinates me most about this recent sell-off is the significant pull back of large dividend stocks. PNG, PFE, and AEE all dish out more than a 4.5% dividend, but have fallen more than 4x the major indices. Intuitively, these stocks should not sell-off in this environment and buying these companies could quickly become a great hedge in an falling market.

So why are these great buys?
There are two main reasons why these are great buys. The first reason is the failed correlation between the major indices and dividend achievers. The ability for these companies to perform and adhere to their targeted profits has nothing to do with the movement of the DOW during the last couple of weeks. It is very likely that these companies will perform as promised and pay the expected dividend no matter what their investors want their shares to sell for. The second reason to buy is because of the pure increase in the value of the dividend yield with the recent decrease in share price. Dividend yield percentage and stock price share an inverse relationship; so as long as the price drops, the dividend yield grows. If the dividend payments are paid as promised, shareholders will get the same payout for cheaper!

So why did these stock sell-off then?
Predicted volatility showed his face again and scared shareholders. Analysts were big on dividend stocks early in the year when the market was fluctuating and investors had little certainty in the direction of the market. Dividend stocks became every investors go-to, causing these stocks to not only show dividend gains to investors, but capital gains with increased buying pressure. This month, major indices have sold off leaving these dividend holders a reason to take profit on their unwarranted share price gains.

I hope to share some of my favorite dividend buys later in the week.

Links for Friday

This Weeks Links:

• fivecentnickel shares excerpt from Andrew Tobia's The Only Investment Guide You'll Ever Need presenting the value of savings. In short, saving a dollar contributes more to your bottom line than earning a dollar.
• Everyone knows that sales happen at certain times of the year. Well ConsumerReports has crafted a sales calendar so individuals can schedule purchases.

A Post from the Past:

• Check out some important amendments I made to my earnings strategies in March's post: Lessons Learned.

Use Behavioral Finance When Picking Stocks

Richard Thaler incorporated behavioral finance into money management by claiming that stocks not only react to information, but to noise creating from buying and selling trends. In short, investors cannot ignore the psychological state of fellow investors when pursing a potential trade.

I am a behavioral finance trader. In order to identify the psychology behind a stock I consult technical indicators. If a stocks technical indicators are strong, I consult their financials to insure its a good trade. If company revenues are rocketing, I look to see if investors have already priced in these expectations by looking at technical trends. While Wall Street is covered with analyst running valuation models, the market is still a supply and demand market driven by investor's willingness to pursue a stock at the current price. This market may sell-off on rumors of interest rate hikes, but will show equal losses when individuals take profit after a recent run-up.

What is an Investor to do?
Diversify your research like you diversify your investments. If you only look at three month chart, your going to get killed. If you look at last years books, your going to get killed. If you happen to notice that the company is expecting an financial sound acquisition sometime in the next several months, and the stock has shown a shift from selling pressure to buying pressure, it may be a perfect time to go long.

In the next few weeks, I plan on sharing several fundamental and technical methods of research. Feel free to share some of your favorites!