Are ETFs Good or Bad?

Like many questions, the right answer is probably, "it depends." Whether ETFs are the best investment vehicle for a particular person likely depends on their goals and needs. However, with trillions of dollars being held by ETFs, their size has necessitated a broader discussion of their merits. This is particularly true in light of recent pricing issues where ETFs traded well below their NAV (such as in August of this year, as well as during the "flash crash" in May 2010). See a good summary article here: WSJ.

Are Junk Bonds Signaling Trouble Ahead?

High-yield (or so-called junk) bonds are set to experience their first annual loss since the recent credit crisis. Because of the higher risk involved with these borrowers, they tend to be the first to experience trouble. Thus, many investors believe that they represent a leading indicator for overall market performance. If this is true, it could indicate trouble to come. See article here: WSJ.

NYSE to Stop "Stop Orders"

On August 24, many stocks fell by large percentages, only to recover shortly thereafter. Investors with standing stop-loss orders likely didn't fair well. And, in fact, many are blaming these orders for the volatility. The NYSE plans to eliminate stop orders, but brokerage firms can still facilitate these for their customers, as long as the final order is sent at market. See article here, Bloomberg.

Lower Minimum Investment

Charles Schwab cut the initial minimum investment from $2,500 to $100 for most of the mutual funds on its Mutual Fund OneSource platform, which charges no transaction fees. At the same time, it cut the minimum for subsequent investments from $500 to $1. See article here, Financial Advisor Magazine.

Consumer Confidence Keeps Rising

According to a recent article from US News, consumer confidence is at an 8-year high. It will be interesting to see how this impacts the economy and markets in light of the negative impacts of international problems, particularly in China.

Circuit Breakers

The U.S. has had market-wide circuit breakers in place since the late 1980s, and individual stock circuit breakers were put in place more recently. Given the increasing volatility in Chinese markets, they are now following suit. See article here, Reuters.

Margin Loans

Traditionally, margin loans were used by investors to allow them to buy additional shares of stock. Recently, however, many investors have used such loans as a simple way to borrow money for purchases outside their investment portfolio. Even so, they are still subject to margin calls should the value of the securities pledged as collateral fall. See article here, WSJ.

Early Recession Signs

In economics, leading indicators are believed to give a forecast of the direction of the economy. In a recent survey, the CFA Institute asked its members which early warning signs (or leading indicators) they follow. Below are the results:

What is the best empirical early-warning sign of a recession for analysts to follow?

Nonperforming loans	37%
Auto sales	20%
Other	18%
Home sales	17%
Consumer-electronic sales	6%
Convenience store/drugstore sales	2%

Behavioral Biases

The CFA Institute recently conducted a member survey regarding which behavioral biases are most impactful. The results are below:

Which of the following behavioral biases affects investment decision-making the most?

Herding -- being influenced by peers to follow trends	34%
Confirmation -- looking for confirmatory beliefs, overlooking beliefs that disconfirm	20%
Overconfidence -- overestimating skill and accuracy	17%
Availability -- judging outcomes by past experiences of similar outcomes	15%
Loss aversion -- disliking losses more than liking gains	13%
Others -- not in this list	1%